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Can market add onto tariff delay rally, or was that it?

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The market gapped up on the open Monday morning after some positive trade talk out of Washington over the weekend and the Dow ended the day up an impressive 298-points or 1.2%. The Dow and the Transports led on the upside as the larger companies would benefit most from any delay in tariffs, but we still saw strong gains of 0.5% to 0.75% in the other indices as well.

Daily TSP Funds Return


If there was a negative it's that the indices peaked just after the open and moved sideways to lower throughout the day.

The market came into this week looking for some kind of catalyst now that earnings season is basically over and we're heading into the weaker 6-month period of the year. So what could spark a rally? How about the Trump administration coming out and saying that they are suspending the trade war for now?

If we go back to January and the market peak, it was the trade discussions that were part of the catalyst to start the correction. So getting a rally off of the weekend news that there may be a pause in tariff talk is certainly justifiable.

The other concern for the market at the January peak was a jobs report that heightened inflationary concerns which fuels rising bond yields, although for now it seems investors have become comfortable with the thought of a 3% 10-Year Treasury yield. The question is whether they will they stop there? And in three weeks the Fed gathers for their June FOMC meeting where they are expected to raise interest rates again, so we'll see if investors are still buying as that meeting gets closer, or if they'll take profits after this trade rally.




The S&P 500 / C-fund did break out from that small bull flag that we talked about yesterday, and it also remained within that large red bearish flag. The fact the investors couldn't add to the opening highs yesterday could be a red flag, but a breakout is a breakout and now the onus is on the bears to prove the bulls and this rally wrong.




The S-fund moved above a key level that seems like only we have been talking about, and the fact that it did it relatively easily could be why no one else was mentioning it. The middle of the head test seems to have passed, although that was just day 1.



As a reminder, one of the possible outcomes of a head and shoulders pattern, besides the more common breakdown in the 2nd chart below, is to see a rally off of the neckline that moves all the way up toward the middle of the head before it turned back down. The small caps are there now so it's make or break for this formation.


The Dow Transportation Index made a bold move above some very stubborn resistance yesterday but it did make a bit of a negative tail formation. Still, it closed above the resistance line and for now that is considered a breakout. But can the Transports withstand the rapidly rising costs of higher oil prices? History actually suggests, yes.




The EAFE / I-fund rallied yesterday but remains below some key resistance.




The price of oil made more new highs yesterday. Right now it is being looked at as a good sign for the economy, but it's getting high enough that it may start to be a burden for consumers. With the market running out of catalysts, it may turn toward this next.




The AGG (Bonds / F-fund) was flat to slightly higher yesterday. It remains in a tough technical position but it has become quite oversold. Unfortunately for bond investors, it has remained in this situation for a lot longer than seems reasonable, but that's how trends go sometimes.




Read more in today's TSP Talk Plus Report. We post more charts, indicators and analysis, plus discuss the allocations of the TSP and ETF Systems. For more information on how to gain access and a list of the benefits of being a subscriber, please go to: www.tsptalk.com/plus.php

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

Tom Crowley


Posted daily at www.tsptalk.com/comments.php

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