TSP Talk Blog

Stocks shot out of the gate on Tuesday morning and never looked back. The Dow gained 373-points after being down for four days straight. The gains were broad, not mixed like we've seen lately, so large, small, international, or tech stock, it didn't matter. Investors were buying it.

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No sooner did I upload Tuesday's commentary where I said that the market wasn't concerned about the government shutdown - given how well stocks performed while it was shut down in January - than the futures started to rally on news of the potential budget deal being made. At this point the market, which is currently lacking catalysts, was looking for a reason to keep rally after taking a couple of days off. So the proposed budget deal, and the possible delay in the China Trade deadline, was enough to pull more investors in.

The action has been great but it does seem a little irrational at this point, particularly with the data I showed on Monday about the plummeting, and negative earnings estimates for the the S&P 500 this quarter. Yes, the downside was probably overdone in December and we're just getting back to those early December levels now, but the market doesn't go straight up forever, and this chart shows not only that it doesn't, but also (if you click on the chart to enlarge) you will see that days like yesterday (marked by the red arrows) can be the setup to suck more investors in, just before things turnaround. (The blue arrows are big days that were not peaks, but getting close.)


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The S&P 500 / C-fund filled one open gap yesterday, but opened another. The 200-day SMA is still in play as the index closed right on it yesterday. There's also some possible rising resistance in the same area - the old support line, but everything is still pointing upward. The question is whether the momentum is building or exhausting itself.




The DWCPF (small caps / S-fund) has been out performing of late but like most indices, it certainly seems to have come a long way without much of a break along the way. I mentioned an inverted head and shoulders possibly forming, and if that turns out to be the case, look for one of those red horizontal lines to be a neckline and possible resistance before it falls back to create a right shoulder.




The Dow Transportation Index blasted through the 200-day EMA but is still below the simple average and pushing toward the descending resistance line off the prior highs.




The EFA (EAFE Index / I-fund) gapped up and this time was not hurt by the dollar but instead helped by a decline in the dollar.




The dollar pulled back yesterday from that double top we talked about yesterday, and as we thought, the open gap would be a target. Now the question is whether that's all it wanted to do before trying to breakout again. There is another big gap open down by 25.40, but that would have to erase the entire move up off the late January lows.




The AGG (Bonds / F-fund) was up slightly and it continues to defy gravity while stocks move higher at the same time. I would have thought a rally like this in bonds would have meant stocks were acting poorly, but they have obviously both been rising this year.




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

Tom Crowley


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