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Dow leads, bonds fall

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The Dow played catch-up after Monday's loss by gaining 103-points, or 0.41%. Boeing's stock accounted for more than 50% of the gain in the Dow. The other indices were up slightly while small caps came in slightly lower on the day. Oil prices moved their highest level since late 2014.
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This is now the best start to a new ear since 1987. Yes, we had a major market crash that year but the first 8 months saw phenomenal gains of 35% to 40% before it all came crashing down.

I still think the market "should" pullback or correct 5% to 10% at some point as historical tendencies suggest, but with the corporate tax cuts in place, regulations getting torn up, and bonds looking like they want to move lower in 2018, I think the bull market case could still be in place this year. We just need a little shakeup once in a while because too much bullishness does not feed a rally. It usually ends it.

We're not quite at the bullish levels we were in 1999-2000 when taxi cab drivers were giving dot com IPO tips, but that could change if we do have a first half like 1987. The question is, will we have a second half like 1987 as well? Of course these days markets move much faster with information so readily available and high speed trading all around. It may all happen much quicker than it played out back then, but who knows?

Earnings season is basically upon us and many expect corporate guidance to be strong because of the tax cuts, but as we have said repeatedly, is that already priced in? If a company does not raise guidance, is that a reason to now sell? It could get tricky.

The SPY (S&P 500 / C-fund) continued to climb, but it did close quite a bit off its high yesterday, and that "may" be the start of a reversal, and a well needed dip. Notice how tentative I am to suggest that it will stop going up. That's how good things have been, but when we least expect it... expect it.

The small caps / S-fund did reverse and close in negative territory. Nothing alarming, but to you market timers, how much would you like to see a move down to 1370 to give you a chance to buy? The market rarely makes it that easy for us and actually makes it difficult for us, so in this case, when we most expect it, maybe we shouldn't.

The Dow Transportation Index continues to rise higher within an "F" flag. These types of flags eventually break down, but there's no formula for determining when, but it's already gone on longer than we might expect.

The EAFE Index (I-fund) bounced back from Monday's slight dip so no fill for those gaps yet.

The High Yield Corporate Bond Fund put in a negative outside reversal day on Monday, and as we pointed out yesterday, that has led to lower prices going forward when it's happened in the past. That turned out to be the case yesterday as the HYG did rollover. This could be a bit of a warning sign for stocks, although the downside would have to continue here.

The AGG (bonds / F-fund) was down sharply as yields moved to a near 1-year high. It's testing some rising support now so we'll see if we get some bond buying at these levels. That would be a better possibility if stocks decide to take a little breather.

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:

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

Tom Crowley

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DWCPF (S Fund) (delayed)

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EFA (I Fund) (delayed)

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AGG (F Fund) (delayed)

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