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TSP Talk: Small caps continue to steal the show

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Stocks were mostly higher on Tuesday although the Dow lagged and slipped 30-points. Other than that we saw slight to strong gains in most indices with the small caps leading the way on the upside again. The S&P 500 is a whisper away from a new high so we're either on a double top alert, or of course we could see a breakout. Bonds and the dollar were up, and oil closed above 70 for the first time since 2018.

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I keep watching small caps, which refuse to rollover despite a chart that seems to look like it could. After Monday's rally I said the minimum global tax proposal could have been the reason as it made large caps less attractive, but I failed to mention that June is also the month that the Russell indices rebalance their holdings so we can see a funky buying and selling pattern based on market cap changes during the month.

I decided to look back to last year to see what happened in June of 2020. Of course June 2020 was in the middle of the rally off the COVID crash lows, so it may not be the best comparison, but what happened? Probably a coincidence, but June 8th of 2020 actually marked the intraday and closing highs for the Russell 2000 and the DWCPF (S-fund) indices that month.

In 2019 the high was made on June 22, so perhaps this means nothing.

Outside of the small caps not much happened yesterday. I did see where the price of lumber made a lower low and closed below its 50-day EMA for a second straight day, and that happened with the dollar up on the day so that is weakness. So, perhaps that bull market is nearing an end in lumber, and being down more than 30% off its highs, it's actually considered to be in a bear market now. Go figure. It's acting more like a Gamestop or AMC these days than a commodity.

One commodity that is still rising is the price of oil which closed above $70 a barrel for the first time since 2018. It sounds bullish for the economy as far as demand being up, but of course it is going to mean much higher gas prices, and that might as well be a tax on consumers, which tends to be a drag on the economy eventually.

All eyes are on Thursday's CPI (Consumer price Index) report this week as it is a good measure of inflationary conditions, so it could be a market mover since that has been the recent focus on Wall Street.

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The S&P 500 (C-fund) hit the prior highs and paused and basically closed flat with that 74 cent gain. Double top pullback or breakout? It has been consolidating long enough that a breakout wouldn't be too surprising, but some deteriorating indicators may be giving us a clue that a pullback is coming.

The DWCPF (S-fund) continues to shine and I have been wrong about this one for weeks now as the bearish looking chart just kept getting better and better despite all of the resistance. Yesterday took out more resistance without any problem. It could be because of the rebalancing, which could mean that the rally could end abruptly once the rebalancing is done. But other that being overbought in the short-term, the chart keeps improving. 2260 looks like the next line in the sand.

The EFA / I-fund was down slightly with the dollar up slightly. It made a slight higher high before dipping back down, and it continues to ride just under its rising resistance line.

The Japanese Nikkei Index is the one I am watching as it looks most vulnerable and is such a big art of the I-fund. Of course that means the European markets have been the ones keeping the EFA afloat.

BND (bonds / F-fund) pushed above the 200-day EMA for the first time in months, and also above the May high so this is interesting. The price of oil keeps rising as if the economy is on an economic growth spurt, yet bond yields are falling (bond prices rising) as if there's an economic problem. What's it all mean? I don't know, but the bond market are the savvy players of the U.S. market so....

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Tom Crowley

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  1. dannyboy's Avatar
    dannyboy, has not received any email from Tommy @ tsptalk new services that are free for one week? I really want help in choosing funds. I was doing well #189 on the tracker but I got lured away by girlfriend and I missed a week back in March and I have not been able to get out of the #’400’s since then.

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