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Temporary trade deal with China

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After a slow start, stocks rallied on Friday with most of the gains coming in the afternoon as we headed into the weekend before the long awaited trade meeting with China. The Dow gained 200-points with most indices gaining near 0.8% on the day. The dollar was up putting pressure on the I-fund. I am writing before the futures market opens Sunday evening so I don't know what the initial reaction to the temporary tariff halt will be.

Daily TSP Funds Return

It was a solid month for U.S. stocks in the end, with the C and S-funds gaining about 2%. The gains in the S-fund took it out of negative territory for the year. The I-fund posted a small loss for the month and it continues to struggle. The F-fund also had a solid gain.




Friday started out slowly, but with G-20 going on and investors hoping for a trade deal announcement, I don't think many wanted to go home short. Add to that a big end to the month for November and fund managers being underinvested, there may have been some end of the month window dressing. The afternoon rally was a sharp incline which suggested a lot of FOMO (fear of missing out) buying, short-covering, and the aforementioned window dressing.

All that leads me to wonder how much of the buying was actual investing versus positioning for some kind of positive announcement for Monday's open? Will a non-deal mean it all gets reversed? Even if there is a deal, will there be a "sell the news" reaction?

I had written the above on Saturday and since I see that some kind of an agreement was made with China. I know the market seems to be looking for a reason to rally in December and some dovish comments from the Fed followed by a trade hand shake would seem to be the green light, but I am still up in the air on what the reaction will be. The futures market has not opened as of this writing, but whatever the reaction is, it will be an emotionally driven open, possibly a gap in one direction or the other, and we can't always trust it. Trust the close more than the open.

The question I have - asking before the futures open - is whether this trade "deal" is bullish or bearish for stocks. They agreed to halt tariffs for 90 -days which will certainly help the bottom line for some companies in early 2019, but the halt is just a place holder while the negotiations continue, which means 90 more days of uncertainty. I suppose you can look at this as the glass half full or half empty. We'll see.

There were some technical positives late last week as the S&P broke above the 50 and 200-day EMAs, but we saw a similar emotional rally fake-out like that after the election.




December has a great reputation for stocks, but it is broken up into three timeframes. A solid start to the month, followed by a mid-month lull, and finally the Santa Claus rally to end the year.


Chart provided courtesy of www.sentimentrader.com



The stock market will be closed on Wednesday to honor George H.W. Bush. I haven't heard yet whether the TSP will be processing transactions that day or not, but I assume there will be no share price updates.



The S&P 500 / C-fund boldly moved above several layers of resistance on high volume. The question is whether it was triggered by what I talked about above. That is, short-covering before the trade meeting with China, or just money managers not wanting to miss out if there was a good resolution to that meeting. Again I am writing this before I see any futures market reaction, and I don't know what will happen, but I do know it should be emotional and whichever way it breaks, it may not necessarily stay in that direction. There is room above to roam before it hits the next resistance area and it is debatable whether that may be the top of a big bear flag.




Apple continues to struggle but recently the market has shaken it off. As I mentioned last week, it has usually been - as goes Apple, so goes the market, but not so much recently. New leaders generally emerge after a bear market. Apple is in a bear having fallen 20% from its highs and breaking below key support. It may just be forming a bottom but this is one to keep an eye on to see if stocks in general are getting ready to rally back, or if this is a temporary bounce off the lows. And can the broader market rally if Apple doesn't? The new 90-day halt on tariffs could help here since I believe the tariffs may have been a lot of what was weighing on Apple.




The DWCPF (S-fund) has bounced nicely off its double bottom, but it is nearing some resistance, and if that holds we could be looking at a possible bear flag.




The I-fund has been having all kinds of problems, and the recent rally in the dollar hasn't helped. To me this looks like a big bear flag (blue). The small red bear flag within it is debatable since the angle of the flag portion is fairly steep and could be interpreted as a small "V" low. But, the big flag would prevail although it could rally up to 64.0 in the short-term and still be in that flag.





The dollar is in a rising trading channel putting pressure on the I-fund, but also U.S. stocks in general. As we talked about last week, this correction in stocks started right when the dollar bottomed in late September.




The AGG was down slightly on Friday although the TSP gave the F-fund a modest gain. A reminder that while the AGG trades all day while stocks are open, the bond market actually closes an hour earlier than the stock market, which may account for the difference since the AGG tanked in that last hour of trading. The AGG is in a short-term rising channel off the lows, and was all of November, but it is now testing the 200-day EMA again, which held in September and October.




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

Tom Crowley


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SPY (C Fund) (delayed)

(Stockcharts.com Real-time)
DWCPF (S Fund) (delayed)

(Stockcharts.com Real-time)
EFA (I Fund) (delayed)

(Stockcharts.com Real-time)
AGG (F Fund) (delayed)

(Stockcharts.com Real-time)