TSP Talk Blog

Stocks gave us a little bit of everything on Tuesday. We saw an early rally fail, but it bounced back to new intraday highs about an hour later, only to fail again. The Dow ended the day down 101-points while the broader indices were closer to flat with the S&P losing 0.15% and small caps just barely negative.

Daily TSP Funds Return More returns

So it looks like the TSP did not create a price for Monday's trading but instead included Monday and Tuesday's action in the Tuesday prices. That's not what they said they'd do but it may have been a typo on their part.

The macro outlook is still focused on the Fed and their interest rate hikes, plus the trade war with China, but more recently the dollar and the price of oil have become major catalysts as well. The dollar was down slightly yesterday taking some pressure off, but it didn't help the price of oil which was down a whopping 7% on the day and that was its 12th straight day of losses!




This could be a good thing for consumers but with energy sector stocks also falling, it puts pressure on the stock market indices. This is related to the strength in the dollar but there's always the supply / demand debate. Is the economy softening thus the demand for oil falling? Or is supply up so much they have to lower prices to sell it?

Here's a longer-term view of the price of oil and you can see that a near 3-year rising trading channel was broken with yesterday's sell-off.




There is an interesting lagging correlation between the price of oil and bond yields and that may mean bonds are due for a rally. 10 - 30 year bond yields tend to move lower after oil falls, so that could mean higher bond prices are coming?

I don't play the F-fund very often but for giggles, let's look at this three year chart of oil vs. the yield on the 30-year bond. Meaningful lows in oil seem to occur several weeks or more before a meaningful low in the yield. Now that the price of oil has made a new 52-week low, are we about to see yields start to move down and make a low? If that's the case, bonds prices (and the F-fund), which move counter to yields, may do a little better then they have been the first 10+ months of the year.

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The S&P 500 / C-fund slipped 0.15% yesterday but more meaningfully, it ran up to the 200-day EMA in the morning and was stopped as if it hit a wall. The big morning gains were gone by the close but the losses were muted and it could have been worse. Some technicians are calling for a possible inverted head and shoulders pattern that may mean some support here, but I think a lot of other things will have to happen for it to hold here including oil prices stabilizing and the dollar slowing down. There's also that open gap near 2680 that is just begging to get filled.




The DWCPF (S-fund) was basically flat on the day but the recent talk about small caps has been that 50-day EMA crossing below the 200-day EMA on the Russell 2000 chart, which is often called a "death cross". Some say the death cross is a buying opportunity and a the mark of potential low but as I've mentioned here many times, I've always seen these as trouble for the intermediate-term after we get that oversold bounce. It doesn't seem to be a good indicator for the intermediate-term once the oversold bounce is over, and it looks like the recent one is over.




The Dow Transpiration Index was up nicely yesterday but also faded from some larger early gains. It has failed at the 50 and 200-day EMAs (almost a death cross) and the rising support line was recently broken.




The EAFE Index / I-fund is another broken chart but behaving just as you might assume in a bear market. That is, resistance is holding and turning back any rallies.




The AGG (bonds / F-fund) poked its head above some very stubborn resistance yesterday. I wouldn't classify this as a breakout but don't forget about the bonds / oil price correlation we mentioned above. It may be bullish for the F-fund in the coming weeks.




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

Tom Crowley


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