We were getting some interesting diverging action this week and we were sensing that something was different, but little did I know that meant stocks were about to rally strongly to new highs. After a terrible start to the week, stocks have resumed their bullish ways and the 251-point gain in the Dow pushed it into new high territory for the first time since January. The S&P 500 also made a new high yesterday while the Nasdaq and small caps are close, but still a percent or so away.
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dollar fell sharply and that almost always has a positive effect on prices of anything that trades in dollars, obviously the I-fund in particular. It doesn't mean everything will be up, but it just lifts everything. For example, the price of oil was down yesterday, but probably a lot less than it might have been if the dollar was flat. But gold was up, silver was up (and it seems to be down almost every day lately), bonds were up, and of course equities were up almost across the board. Interestingly, the VIX (Volatility Index) was also up yesterday.
Here's the chart of the dollar ETF, and it has now broken below a "toppy" looking head and shoulders pattern.
This may turn out to be a green light for the beaten down I-fund, although it is now testing the important 200-day EMA in a bear market, which can be a tough nut to crack.
A break above that 200-day EMA - and hold for 3 - 5 days - could mean the bear market is over for the I-fund, but let's see that confirmation first.
One more thing... President Trump was praising the new highs in stocks yesterday and I wonder if he sees this as an opportunity to put more pressure on the Chinese tariffs? It seems reasonable. He probably wouldn't want to do this if stocks were falling and make things worse, so this may be the time. We might be on the lookout for another announcement while these new highs emboldens his trade plans that haven't really hurt U.S. stocks yet. Just a guess.
The S&P 500 / C-fund moved to new highs again and in this chart I just pointed out prior breakouts where the red boxes represent breakouts that eventually (usually within a week or less) came back below the breakout level. It may be hard to see depending on your device, but the green boxes show breakouts that did not come back down below the breakout point. So the fate of the current breakout in blue is up for debate still, but it's getting close to the top of the channel.
The small caps (S-fund) had a good day but remains in a funky bear flag-like pattern but it has remained firmly above that old resistance line, which is currently at 1470.
The Nasdaq has been lagging but exploded a bit yesterday keeping that pattern of bear flags breaking out to the upside, rather than breaking down as they normally do.
The Dow Transportation Index was flat on the day and is churning within some tightening support and resistance.
The AGG (bonds) was up on the day and as we said, this ugly chart may need some relief but it remains in trouble.
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Thanks for reading. Have a great weekend!
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