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Trade truce triggers rally

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Stocks opened sharply higher on Monday as Wall Street applauded the 90-day truce in the trade war. No deal was reached, as we discussed yesterday, but apparently it was enough of a relief for investors and traders to revalue stocks on the news, which comes on the heals of the Fed's dovish comments last week. The clock on the truce starts on January 1st. We saw the indices come off their highs but retain solid gains into the close.

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The Dow was up nearly 500 points in early trading but had to settle on a 288-point gain, and we did see a little profit taking off the initial reaction in most indices. Perhaps it was because of a little warning triggered by a yield curve inversion between the 3 and 5 yield Treasuries.



As this article explains however, inversions tend to precede recessions, but not right away. As a matter of fact, even though the last time we had a yield curve inversion was in 2007 (before that recession), the first one actually came in 2005. So it's out there, but it doesn't mean we're heading into a bear market tomorrow.

So, the "deal" with China was not really a deal, except to postpone an agreement, but in the meantime tariffs have been lifted for 90-days starting in January. I had posted a chart of Apple yesterday since they had been getting hit so hard because of the trade war, and they did get a nice bounce on Monday, but technically it is still in some trouble. The rally yesterday filled its open gap but it is still below that key support line.



From www.tsp.gov: Some financial markets and the federal government will be closed on Wednesday, December 5, in observance of the national day of mourning for the late President George H.W. Bush. Therefore, the Thrift Savings Plan will not be updating share prices in any of the TSP funds for that day. Transactions that would have been processed Wednesday night (December 5) will be processed Thursday night (December 6) at Thursday’s closing share prices. If you have questions about your TSP account, the ThriftLine (1-877-968-3778) will remain open on Wednesday, December 5.



The S&P 500 / C-fund rallied out of the gate on Monday morning, and closed just about where it opened. That creates a spinning top candlestick formation which is like a stand off between the bulls and the bears, but the bulls obviously won out because of the gains. These spinning tops tend to mean there is a lot of indecision out there and can be a reversal pattern. We saw a similar formation after the election rally in November.




I thought the S&P 500 futures chart was interesting. Here's a 30-minute chart showing we had an immediate spike higher with that big gap up opening on Sunday evening. It was up over 50-points in early trading but as we neared the open they had fallen to about +30, where they closed on Monday afternoon, so there was actually a lot of profit taking.




And here's the futures daily chart to show it hit the top of a bear flag before pulling back. Gaps are rare on these futures charts but we did have one created Sunday evening.




The DWCPF (S-fund) had a nice day and this one actually closed close to the highs, and above the 50-day EMA, but like the S&P 500 futures chart, it hit and stopped at the top of what may be a bear flag.




The Transportation Index opened sharply higher but it posted a big negative reversal day leaving that kangaroo tail which tends to lead to more downside action at least early the next trading day.




The I-fund was up nicely and the dollar didn't do anything to hurt here as the greenback was pretty flat on the day. There was a big gap opened here as well, but the I-fund is like Swiss cheese with all its open gaps because of the overnight trading.




The AGG (F-fund) ramped above its 200-day EMA as yields fell (10-year Treasury went below 3%) and bond prices were up. It remains in that small rising trading channel and is starting to look interesting. Let's see if it can hold above the 200-EMA for 3 to 5 days to confirm this breakout.




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. Happy Hanukkah to all our Jewish friends. We'll see you back here tomorrow.
Tom Crowley


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

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SPY (C Fund) (delayed)

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DWCPF (S Fund) (delayed)

(Stockcharts.com Real-time)
EFA (I Fund) (delayed)

(Stockcharts.com Real-time)
AGG (F Fund) (delayed)

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