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A late fade, but some follow through gains

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Despite a weak start on Monday, stocks followed through on Friday's big rally to tack on more modest gains. The Dow gained 98-points but percentage-wise it was the S&P 500, then the Nasdaq, and particularly the small caps that outperformed, and the small cap January Effect has not disappointed.

Daily TSP Funds Return

We have now seen a big rally off of the December 26th low - we're talking 9% in 8 days of trading. Now that's a bear market rally for you. Those lows may indeed hold, but I still suspect that a test of the lows is likely, but it would actually be healthy - IF IT HOLDS. It's very possible that it does hold, but that's not always the case. We've been in a bull market since the early part of 2009 and we just haven't seen a lot of market action like what we just had, but before 2009 we saw many examples where it is most certainly possible to make lower lows after an initial 20% decline.

There's still a lot on the table but some of the 2018 negatives are starting to clear up, or at least show signs of more clarity. The Fed may be getting more accommodative, but as I mentioned yesterday, the December FOMC meeting minutes (coming out Wednesday) may be interesting since they were still hawkish back then. At least more hawkish than they sounded last Friday.

The Chinese may be patient when it comes to the trade negotiations, but their weakening economy may push them closer to wanting a deal than we saw 6 months ago. But until those tariff negotiations are over, it will leave a black cloud over the earnings picture as companies are still not sure how the tariffs will impact their bottom line in 2019.

Lower oil and gas prices has certainly helped the consumer, and that's a plus, but as oil falls it takes down the prices of some stocks along the way.

Bottom line, we've had a big rally and there may or may not be some more room to run on the upside, but don't be surprised if the S&P 500 is testing that December low in the coming weeks. But the market always seems to surprise those who think they know what is going to happen. Technically, I see a test of the lows coming but stocks may just keep climbing the wall of worry humbling us speculators.



The S&P 500 / C-fund rallied modestly yesterday adding to Friday's big rally, and the big rally off the December lows in general. The 20-day EMA was the first level of resistance that the S&P met and it did mange to close above it. But there is an old support line that broke down, that could be getting in the way and now act as resistance near yesterday's highs.




The weekly chart shows more overheard resistance just over 2600 if the S&P can get above the resistance at yesterday's high. The red circles below represent clean double bottoms and successful test of the lows. The blue circle was a sharp correction that did not test the lows. What everyone wants to know is whether we'll get a blue circle or a red circle this time.




The DWCPF (small caps / S-fund) shot passed the 20-day EMA fairly easily on Monday and now the next level of resistance looks a little tougher as the 50-day EMA meets an old support line near 1275.




The Dow Transportation Index was up but we're still seeing that bear flag forming so it's not all great here yet.




The EFA (EAFE Index / I-fund) is closing in on the upper end of its descending trading channel, which happens to be where the 50-day EMA is as well. Either the bear market is over or this could be a bear market roadblock for the I-fund.




The AGG (Bonds / F-fund) was down on the rally in stocks and it continues to test the breakout level from the late 2017 highs.





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

Tom Crowley


Posted daily at www.tsptalk.com/comments.php

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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)