TSP Talk Blog

The stock market caught a bid early on Friday pushing some indices to their highs of the day, then flattened out during a typical low volume summer trading day. The Dow led as the rebound continued from Wednesday's trade war sell-off. We saw only slight gains in the S&P 500 and Nasdaq while the small caps were down slightly on the day. The dollar was down helping the I-fund to a good day.

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We got some earnings reports out of the Financial sector on Friday morning and the results were mixed - some good, some not so good. The bad news / good news situation was that the XLF was down again and closed just below the 200-day EMA. The good news was it rallied to close well off the lows creating one of those positive reversal tail formations which turned into short-term lows several times this year for the financials.




The President will meet with Russia's Vladimir Putin this week. Whether or not this will be a market mover may depend on the tone. As you may have seen, the Mueller investigation charged 12 more Russians for election meddling so tensions may be high.

For those of you who are not inclined to trade your accounts but rather set and forget it for a period of time, I found this chart that lists the current tailwinds and headwinds the market may be facing in the coming months / years.

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The S&P 500 / C-fund moved to a multi-month high on Friday but it is still up against that March high resistance line. There is a large gap near 2850 that has been open since January that could be a lure for the index, but there's also a small open gap down near 2750 and the question is whether we can get new highs before that one gets filled?




"TommyIV" posts our Weekly Wrap Up Blog each Saturday and for the last few weeks he has noted that the S&P 500 has been rallying during the first half of each month, but pulling back again during the second half, and today starts the second half of July, so it makes you think. Plus, this being an earnings month, there's a tendency for a sell-the-news reaction regardless of the results. So, the chart looks good technically and poses the possibility of a breakout, but we're seeing some signs of potential headwinds.




The weekly chart of the S&P 500 made a higher high, which is general a very positive development, but it is also nearing the top of the long-term rising trading channel. In late 2017 / early 2018 we saw an overly aggressive parabolic move above resistance that eventually corrected, but does that mean the upside resistance will hold this time?




The small caps (S-fund) made a double top last week and has since struggled a bit, which is normal. There was a negative reversal pattern created on Friday that can mean we are seeing a short-term peak like the ones in March and April, but then again we got some false negative reversals just a couple of weeks ago.



According to sentimenTrader.com, "The small-cap Russell 2000 fund, IWM, closed near the day’s low on Friday while the Dow Industrials fund, DIA, closed near its high. That has happened 24 other times since 2000, leading to a rally on Monday 42% of the time for IWM and 50% for DIA. Overall, stocks were a little weak in the very short-term, but other than that there was no particular message in the divergence."


The EAFE Index (I-fund) moved above its 200-day EMA on Friday and may be trying to fill that open gap near 68.00. The 50-day EMA held as resistance on the prior test and that would be the concern going forward.




The German DAX is also testing that stubborn resistance level where the 50 and 200-day EMAs meet.




The AGG (Bonds / F-fund) tested May's high and the resistance of bonds has been a bit of a surprise given the strength of the economy and the Fed raising rates. But perhaps this is telling us that the economy is not as strong as it appears? If that's not the case I would expect this to reverse down again from here, so if it doesn't... perhaps a slowdown is coming?




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

Tom Crowley


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