TSP Talk Blog

Stocks were flat to mixed on Monday but it was a positive day as we saw a big reversal day after the Dow was down more than 500-points at the lows and ended up 34-points by the close. The Nasdaq led all day, and that usually portends some positive activity in the very short-term. Small caps and the Transports rebounded but both closed in negative territory.

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It seemed like as soon as those European markets closed yesterday that the U.S. stocks started it rebound off the lows. There is a lot of turmoil over there right now between Brexit and the violent protests in France. The dollar was up versus the British pound and the Euro, and that put pressure on the I-fund.

Next week is the FOMC meeting and while there are some firm expectations of a rate hike, one word changed in their monetary policy statement can move stocks sharply in one direction or the other, although it always seems like they do what they can to appease the market. It's not their job to do that, but for several years that has been the case - at least for a short-term move. But we still have a week of trading left in the interim.

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The S&P 500 / C-fund was down over 200-points in just a few days before the afternoon rally yesterday, so it's not too much of a surprise to see the bulls make a move - or the bears tale profits. I think the bulls are happy because it didn't collapse but we still didn't get a real nasty day that may be needed to turn this thing around. It was just another "ho-hum" 2% decline at the lows, like we talked about yesterday. So, the action looked good for a potential relief rally, but I'm not sure it was enough to say the worst is over. Another PMO crossover can trigger an oversold rally, but maybe not much more.




The DWCPF (S-fund) closed with a modest loss but came back from much sharper morning losses. The chart broke down from that bear flag and made a lower low below October's low, but as we talked about yesterday, it's the close that matters more. It is not as clear here as it did close below the bear flag (red) by a small amount but above those October lows.




The Transportation Index took another hit and technically this chart is still in trouble, although it did have a positive reversal day which could bring some upside today, at least early, but now any upside action will start another bear flag watch.




The I-Fund (EAFE Index) broke down hard and closed at a lower low as the dollar rallied and Europe is in some chaos. This is now near two-year lows.




The dollar rallied and the UUP pushed back into the rising trading channel, which has been one of the culprits of this recent correction in stocks.




The price of oil was down 3% yesterday so there's no big push off the lows here. The strong dollar is also part of the problem but it is all tied together to what the markets seem to be interpreting as a slowdown for the economy.




The AGG (bonds /F-fund) was up again as yields continue to slip. There's a major double top slightly higher than yesterday's highs, and if hit, that could cause the bond market to pause for a bit. The bank stocks (XLF was down 1.4%) are struggling with yields falling again.




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

Tom Crowley


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