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TSP Talk: Bulls win Thurday's choppy battle

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Stocks were mixed on Thursday, which turned out to be a very whippy day with bouts of strength and weakness throughout the trading session. By the close we saw many indices close right between the day's highs and lows. The Dow gained a solid 160-points and the S&P 500 has now been up for 6 straight days. Meanwhile the Equal Weighted S&P 500 (same 500 stocks) has been down 5 of the last 8 days. The Nasdaq lagged yesterday as Apple, Amazon, Google, and few other big name tech stocks took a day off from their relentless rally.

Daily TSP Funds Return
Jerome Powell came out with a fairly bullish statement on inflation and interest rates at the Jackson Hole symposium yesterday. He said the Fed will keep rates low, even if inflation rises above 2%, their normal level of concern, and basically told us that he has the market, and the economy's, back until the COVID slowdown passes.

That remark sent bond yields rising, and I assume that is because he is going to let the economy grow untethered until further notice.

Meanwhile that gave investors another reason to be optimistic. The question is, after 5 months of nearly straight up action, how long can the rally last without some kind of meaningful pullback? It seems we've have this discussion every year lately and the answer has been - for quite a while, but when it's over it tends to break down quickly.

That makes it tough because if you're looking to buy any 2 - 3 day pullback, while someone else is looking to sell at the first sign of trouble, you have a bit of a standoff.

Looking back over the last couple of years, here's some relentless rallies that looked unstoppable, and what subsequently happened in the following weeks.

Late 2017 into 2018:




The final half of 2018:




The end of 2019 and into 2020:



Nobody rang a bell at the top and, if you did what I did earlier this year, which was buy the first 10% decline in February / March, you were hit with the hard reality of what the market can do. Of course what happened earlier this year was not common, and buying 10% corrections is usually a good move.

New highs for lumber again yesterday, which has double just since June, as the housing market seems to be in full gear.
We saw a several earnings reports after the bell yesterday and almost all of their stocks were trading higher in after hours trading, but none were the major companies that seem to be the only ones that move the market, so we'll see how that gets translated in Friday's trading.




The S&P 500 (C-fund) rally, dipped, rallied again, and then settled somewhere in the middle of the day's range. On the bullish side we did see more gains and, maybe more importantly, that midday sell-off found support at the old resistance line that it broke through on Wednesday. On the bearish side we got a spinning top candlestick formation which can preceded a change in direction.




The DWCPF (S-fund) also created a spinning top candlestick but the trend and trading channel remain intact for now. However, yesterday's highs tested and stopped at the February highs.




The EFA (I-fund) pulled back but remains above key support. 65, then 64 still look like the key pivot points. It looks like a bullish consolidation, but also, flat tops tend to be bearish in the short-term, so it's toss up.




The financial stocks have been lagging the major indices during this entire recovery, but yesterday it really liked the sharp rally in yields. It gained 1.7%, so just another puzzle piece in what looks like a market that wants to continue higher, although we know the rally can't last forever.,




BND (Bond ETF / F-fund) tanked yesterday thanks to the Fed's statement on inflation, employment, and how that will determine their interest rate policy. Bond prices fell, just as the bear flag might have suggested, while the yield on the 10-year looks to be trying to carve out a bottom.




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Thanks for reading. Have a great weekend!

Tom Crowley




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Comments

  1. bmneveu's Avatar
    Lumber has doubled in the last 3 months? There's something you don't see every day... nice catch! I don't pay near enough attention to commodities to notice things like that very often. The bigger question is, what does that mean for stocks? Less profit margin on home builders?

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