TSP Talk Blog

Stocks rallied again Friday on the prospects of tax cuts as the Senate passed a budget putting the plan closer to reality. The Dow gained 166-points while the C and S funds gained just over 1/2 of a percent each. The I-fund and bonds (F-fund) were down on the day as the dollar rallied and yields moved higher.

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I don't know how many times or how long the market can rally on this prospect of tax cuts but apparently not everyone believes the cuts will be made, otherwise who would be left buying stocks? From a psychological standpoint, you would think the optimistic would have bought already and the only ones left buying, theoretically, would be those who think either the cuts won't occur and stocks might sell-off, or stocks are already too high and even a tax cut would see a sell the news reaction - since there would be no one left to buy.

But I guess we can't have both. If the ones who believe tax cuts won't occur are waiting for the deal to be done, then we could have some buyers if the deal is done. But will we get profit taking from those who profited along the way?

We can never really know the answer until it happens, but indicators like the Fear / Greed Index at Fear & Greed Index - Investor Sentiment - CNNMoney show us that investors may be closer to all in then concerned about it.




The SPY (S&P 500 / C-fund) rallied to new highs and the bears continue to be left behind while buyers use every hint and rumor of news about tax cuts to buy more. Technically, the breakout sets up a test of we saw during the prior two F-flag like formations where breakouts turned in to fake outs - at least temporarily. Volume was quite high because of it being an options expiration Friday.




The weekly chart of the S&P 500 shows its moving above the rising trading channel - something that happened a couple of other times during this nearly two year uptrend.




The DWCPF (small caps / S-fund) gapped up on Friday and it turned out that the 20-day EMA and the rising support line held solidly and the uptrend continues.




The Transportation Index also gapped up and remains in that "megaphone" formation.




The EAFE (I-fund) was down because of the dollar's positive reaction to the budget passing in the Senate. It is now in a fairly clear bull flag after drifting lower for a few days.




The AGG (Bonds / F-fund) gapped down on the budget passing and the dollar rallying. Technically the 50-day EMA failed and now the 100-day average is going to have to be the one that holds it up. Below that is a lot of air.




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

Tom Crowley


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