TSP Talk Blog

It was the best week for stocks since December but it ended with some profit taking as the Dow lost 305-points on Friday, and the losses were broad across most indices although the Magnificent 7 stocks did well keeping the Nasdaq positive. Small caps lagged losing nearly 1% on the day, and the F-fund led the TSP Funds as yields declined on Friday pushing bond prices higher.

Daily TSP Funds Return More returns

There was some backing and filling on Friday after a dramatic week of gains the prior four days. Small caps took a hit on the day but still managed a gain of over 2% for the week. The I-fund was down but actually held up well considering the healthy gain in the dollar.

The weekly chart of the S&P 500 (C-fund) shows that relentless move higher which is debatably unsustainable without some kind of meaningful pullback at some point. The distance the index is above its 200-week EMA is getting cringe-worthy. It is nearing the distance we saw just before the 2022 bear market started.



A longer term log scale chart which focuses more on percentage moves rather than points, also shows the current extremes. The post COVID rally did surpass this current overstretched chart, but that was driven by historic government spending, and that led to the topping before that 2022 bear market.

The rally in the dollar didn't help stocks on Friday and the gap up now has it eying the November peak. Whether that produces a double top pullback or not could determine how well stocks do this week. The cup and handle formation suggests it could make new highs in the near future which could be trouble for stocks, but so far this year the stock market has done a good job of rallying despite this strength in the dollar.



The 10-Year Treasury Yield was down on Friday and it is testing its 50-day EMA and possible filling in first half of the right shoulder on an inverted head and shoulders pattern, which could be suggesting higher yields going forward. Why they would go up, we don't know. It could be strong economic data, inflationary data, or just the bond market readjusting to a Fed that may not be as dovish as it had priced in earlier in the year. Right now the bond market knows the Fed is projecting three rate cuts but it is looking for more clues in the economy to decide if that is a legit possibility or not.

Once again I look to the Dow Transportation Index to see what this market leader may be telling us, and on Friday there was an early rally that filled an open gap from back in February before it backed off again. I had noted several head and shoulders pattern on this chart before that suggested a bearish outcome, but if we take a step back and look at the longer term picture...



... we see a large bullish flag forming and that could suggest a breakout to the upside is coming, so we have a couple of possibilities going forward, but since they are contradicting possibilities, it's a tough call to guess where this goes during the course of the rest of the year. And being the market leader, the direction that it goes could easily lead the TSP stocks funds in that direction as well.


The March seasonality chart shows a lot of choppiness in the final week of the month.


Chart provided courtesy of www.sentimentrader.com

And, it is not shown, but if you're debating about what to do with your account as we come toward the end of March, the April seasonality chart is quite bullish in the first week or two of the month.

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The S&P 500 (C-fund) pulled back modestly on Friday after a four day rally. The Fed's outlook on interest rates was a major catalyst for last week's gains to new highs, but on Friday it did some cleaning up on the chart and filled Thursday's open gap. A move back down to the 15-day EMA wouldn't be a surprise since it has been getting tested repeatedly this year. However, as we talked about above, the longer term charts suggest some possible major corrections could be on the horizon. When, is the question?




DWCPF (S-fund) pulled back sharply on Friday and it is now testing the previous closing high from early March while filling in that small open gap in the process. It's a good looking chart that could hold here, but if not, there's several support areas just below the current level that could also get tested.




EFA (I-fund) made a new high on Thursday and pulled back slightly on Friday. It looks like some kind of bullish flag in blue has formed, but there is room down to 79 if it wants to continue to consolidate after the one month rally off the the mid-February low. The open gap down by 78 is always a possible downside target but the bull flag would have to fail at this point for that to happen, so the bears may have missed that opportunity.




BND (Bonds / F-fund) continued its rebound off the recent lows but it nears some descending resistance. There's open gaps above and below so in the short term it looks like a coin toss.




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

Tom Crowley


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