TSP Talk Blog

Stocks were up again on Friday, ending the 4-day up / down chop that the Dow, S&P 500, and Nasdaq had been in. The Dow gained 111-points on the day, and the broader major indices all saw gains of up to 0.4%. The light volume trading allowed for some spike moves during the day, and most were to the upside.

Daily TSP Funds Return More returns

We saw slight gains in the S-fund (+0.32) and C-fund (+0.66%) last week and another loss for the I-fund (- 1.09%) but it was defensive type stocks - consumer staples, utilities, healthcare, etc., that led on the upside so maybe that is trying to tell us something.

I do see a few warnings signs out there, but the charts, particularly the small caps chart, looks like it wants to breakout, so August is throwing us a few curveballs making it tougher to get a solid hit.

We're seeing the market almost acting like it is preparing for a less inflationary, slower growth environment, despite the great growth and economic numbers we've been seeing in the data. But when bond yields are falling, gold is free-falling, oil and copper are down big, then something is amiss. Perhaps it is all about the dollar and how the trade situation is unfolding, I don't know. But it is interesting action that hasn't seemed to impact the stock market yet -- at least not the U.S. stock market.

The market may be telling us that investors are sensing that the Fed may not have to be as aggressive with their interest rate hikes if there is a slowdown brewing, and they have learned over the last decade that low interest rates means smooth sailing for the stock market.

Perhaps the Fed's rate hikes are doing their job already as we see that evidence of markets (yields, gold, etc.) acting as if they are preparing for a slowdown, while the stock market says, "bring it on, and yo Fed, stop raising rates!"

"Normalizing" rates theoretically would be a good thing for older Americans who would like to have a higher return than 1% on their savings to survive and not have to depend on risks of the stock market to keep up with inflation. Do we want higher rates so we can have the option of some higher guaranteed safe returns, or do we want low rates to keep the economy, and the stock market, growing faster?

President Trump has chimed in on this recently basically saying - hey, President Obama had 8 years of near 0% interest rates to help the economy. Now the Fed is aggressively raising rates while I'm (Trump) trying to accelerate growth. So it's a bit of a conundrum.

This is all speculation, of course. I'm just trying to make sense of what's going on.

As far as the August seasonality chart goes, we just came out of a strong 5 - 6 day period and going forward it gets back to a more choppy environment that is below average compared to other months.


Chart provided courtesy of www.sentimentrader.com

---

The S&P 500 / C-fund rallied for a second day on Friday after the week long pullback that culminated with a positive reversal day last Wednesday. We saw the open gap (blue) get filled on Thursday, and the S&P closed within that open gap on Friday. The formation looks good, but as I mentioned above the defensive stocks were the ones that have it moving the index last week, so is that a warning sign, or can they continue to push the index to new highs?




The small caps (S-fund) chart continues to consolidate and it actually looks really healthy. The problem has been that it has been hit hard on the days it has been down so there seems to be a love / hate relationship with investors who are willing to dump small caps on some days, but jump back in the next.




The Dow Transportation Index has been in a positive channel since the late June lows and the only signs of potential trouble come near 11,300 where there is some longer-term rising resistance. If the channel holds then there will be a lot of room on the downside to test the bottom of the channel, but a breakout would likely have it testing the all-time highs just above 11,400.




The EAFE (I-fund) rallied on Friday pushing it above the breakdown line and it may have its eyes on those open gaps above.




Of course for the I-fund, it's all about the dollar, which has pulled back over the last two days after hitting it's recent peak last Wednesday. There is a big open gap that could look to get filled, but there is also some rising support at the top of that open gap so we'll see just how strong the dollar is this week, when it tests that support.




The price of gold, silver, copper, and oil have all been hit hard and we've been trying to figure out if this is completely because of the strength in the dollar, or if this is a sign of a slow down in the economy and weak inflationary data. The price of oil is testing some important support and is looking over a precipice if that support does not hold. Good for consumers, but also potentially an economic warning?




The AGG (bonds) rallied again as bond yields continue to suspiciously dip. I say suspiciously since conventional wisdom is that interest rates are supposed to be rising and the Fed is supposed to raise the Fed Funds rate again in September, yet yields are falling. The 50-day EMA is getting close to moving back above the 200-day EMA, and that would be a bullish technical move for bonds. At this point, as long as it remains above that 106.30 old resistance line, this looks bullish.




A longer term view of the AGG shows some resistance near 106.65 so we'll see just how strong it is once it meets that.




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

The legal stuff: This information is for educational purposes only! This is not advice or a recommendation. We do not give investment advice. Do not act on this data. Do not buy, sell or trade the funds mentioned herein based on this information. We may trade these funds differently than discussed above. We use additional methods and strategies to determine fund positions.