TSP Talk Blog

Stocks were mostly higher yesterday with the Dow gaining 116-points, or about a 3rd of Monday's losses. The action was tentative in front of today's press conference and policy statement from the Fed. Small caps lagged while the Transports led percentage-wise. A rally in oil helped keep the S&P 500 in positive territory.

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The action was choppy although the range wasn't all that wide. A sharp afternoon rally made it look like we could close at the highs, but investors pulled back before the close with the Fed on deck. Day two of the FOMC meeting is today (Wednesday), so we'll get a policy statement announcement and the first press conference by the new Fed Chair Jerome Powell, which could be a market mover. We will almost certainly get a 25 basis point rate hike today, but the big question is whether they are talking 3 or 4 rate hikes for the rest of the year. A fourth could shake up the markets since I don't believe the anticipation of that one is priced in.

The yield on the 10-year Treasury Note has been consolidating in a bull flag looking formation, so if this is telling at all, I suspect the yield could be surpassing 3.0% soon. But then again, the bull flag could still remain intact even if it comes back down to test the 50-day EMA again beforehand, should the Fed surprises with a more dovish stance.

The S&P 500 / C-fund got back 4-points of the prior day's 40-point loss, so yesterday wasn't exactly a Turnaround Tuesday. There is still a small open gap on the chart, and open gaps on the S&P 500 index are rare so I wouldn't be surprised if the volatility after the Fed today closes that gap. That doesn't mean it will stay up because the top of that gap looks like an area of potential resistance since it is also lined up with the 50-day SMA (orange) and the old rising dashed blue support line.




The small caps / S-fund were slightly higher on the day failing to add much to the semi-positive reversal day on Monday. It is above the 50-day EMA, which held strongly when tested on Monday, and technically it looks OK here. Just watch that 1360 area on any downside.




The Dow Transportation Index was up moderately yesterday but the high of the day stalled at the 50-day SMA again.




The EAFE Index / I-fund was down as the dollar rallied again. The bull flag (blue) that we drew in yesterday seems less like a bull flag after Tuesday's losses, and it looks like the bottom of the big bear flag is getting ready to be tested.




The AGG (bonds / F-fund) looks to have finally broken down from the big bear flag that we've been watching. One tick below does not necessarily constitute a confirmed breakdown, but the fact that breakdowns from bear flags can be swift once started, waiting 2 or 3 days could be dangerous.

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Thanks for reading. We'll see you back here tomorrow.

Tom Crowley


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