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Earnings season meets the geopolitical

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Stocks opened higher on Friday but the highs of the day were hit at the open, and the indices lost steam throughout the day. The Dow closed with a loss of 123-points and most of the major indices held the losses to under 0.5%, but in comparison to the open, it felt like a bigger hit. Trading volume was the lightest of the year, so the selling certainly wasn't too serious, and there was little upswing toward the close.

Daily TSP Funds Return

It turned out to be a good week to be in stocks, particularly the U.S. funds, as both the C and S funds added about 2% on the week, while the I-fund added 1.5%. Bonds were down.

Earnings season started with some decent reports by the banks but they didn't hold their early gains so it may have been a case of "sell the news." We know expectations have been high, but the tariff talk has taken them off of the most lofty estimates, so they may still surprise us. As always, forward guidance, how companies think they will do in the coming quarters, will be the key.

Not that I expect it to be a major factor, but if you were wondering, here is what the market did last year after the 2017 air strikes against Syria. The S&P 500 traded in the same range the day before, then again the day after, so it had little impact. There was a slight dip a few days later, but like every dip in 2017, it was bought.

The futures opened higher but I'm writing this before the James Comey Interview airs so who knows if he will say something that will impact the market. Washington headlines seem to matter, although lately investors have been shrugging it off more - particularly on the cusp of some big earnings releases.

The S&P 500 / C-fund hit the 50-day EMA at the open on Monday, but that was a queue for some investors to take profits. We had a pretty good run off the April 2 low, about 125 points, or 4.9%, for the S&P 500, and seeing some selling at the first test of the 50-day EMA is not a big surprise. It was a negative outside reversal day, which is bearish, but it closed off the lows and back above the 20-EMA, so it's possible that there's some positive momentum heading into Monday. Friday saw the lightest day of trading of the year, so I don't think it was the big money selling.

The weekly chart looks good in that it is firmly back within the rising trading channel. There is a bearish flag component to the formation, but the big positive reversal bar, which successfully tested the February low, looks pretty solid as a bottom at this point.

The small caps / S-fund also posted a negative outside reversal day on Friday, and I marked prior reversals so you can see why they are a concern. They don't always turn out to be negative going forward, but certainly often enough to be concerned.

The Dow Transportation Index closed in positive territory but it also gave up bigger early gains after moving above the 50-day EMA for the first time in a few weeks. It couldn't hold into the close so it remains in the flag, or megaphone looking formation.

The EAFE Index / I-fund had been lagging slightly lately although it held up on Friday. That may just be a matter of the U.S. stock market falling later in the day when the overseas markets were already closed.

The AGG (bonds / F-fund) was up slightly on the day after a negative open and it just barely held onto the 50-day EMA. It sure came down a lot faster than it went up, but that slow rising channel may be the play for the short-term. Buy the bottom, sell the top. I'm not sure it has the strength to get back above the 200-day EMA in this higher interest rate environment, so I'm not real bullish on bonds overall.

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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