TSP Talk Blog

It was another positive trade story that boosted stocks on Friday sending the Dow up 444-points, leading the charge with those large global companies most impacted by tariffs. The S&P and small caps gained over 1% while the Nasdaq, more tech driven, was up moderately at +0.61%, and the Transportation Index lagged with a modest gain of 0.23%.

Daily TSP Funds Return More returns

Looking above at those annual returns for just being 7 weeks into the new year, and many of you might be happy with that for a full year. The question is not whether stocks can sustain that pace - they can't - but whether it will consolidate and move sideways for a while, or if this big rally is still part of a big bear market rally that will fail. The latter is getting tougher to imagine, but it is not out of the question if we look back at other historical massive bear market rallies.

It's been the velocity of the move off the lows has been so surprising. According to sentimenTrader.com, "The Dow Industrials have gone from a 52-week low to an 8-week win streak of more than 10%. Since the year 1900, this has happened only two other times – July 11, 1947 and November 29, 2002. Both times, the Dow dropped at least 5% during the next couple of months but showed gains over the next year."

So even if 2019 turns out to be a very good year for stocks, something not many predicted after how 2018 ended, don't expect the next two months to be like the first two this year. The market will likely want to scare folks out before continuing higher down the road, and a 5% decline like the one mentioned from sentimentrader above, could do that.

This old chart of seasonality surrounding President's Day shows some weakness after the holiday, but historically the Friday before the holiday weekend was also supposed to be negative, and it was far from it, so this isn't a rule, just some averages.


Chart provided courtesy of www.sentimentrader.com


And finally, there have been seven Fridays so far this year and they have been up 6.83% in total (not cumulative.) There have been 6 Mondays (or Tuesday's if Monday is a holiday) and they are down 1.28% this year.

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The S&P 500 / C-fund keeps pushing higher, cutting through resistance with ease and may soon test the upper end of the large trading range the market has been in for the last year or so, with a few exceptions were it went above or below that range. As I've mentioned before, there is a possibility of this chart being in the midst of a large inverted head and shoulders pattern, which are eventually bullish, but short-term we may see the left shoulder start to form.




The DWCPF (small caps / S-fund) pushed through, and closed above its 200-day Simple Average for the first time since October. These straight up moves make it tough on market timers, but it's a dream for trend traders who stay with the trend until it breaks. It's extended, for sure, and the rubber band is getting stretched. It's a matter of how that is rectified - an ease of tension or a snap.




Let's take a look at the Cycle of Emotions chart. In December we were hitting those Panic and Capitulation levels on the way down, and then that big sell-off on January 3rd when Apple gave us an earnings warning was probably the Despondency level for the bulls. Then we started to rally from there and we saw Hope turn into Relief, and now we may be seeing the Excitement turning to Thrill. Friday's big rally may have even touched that Euphoria level at the peak of the cycle.





The AGG (Bonds / F-fund) continues its staircase-like trend higher. It has been consolidating sideways for a few weeks before making a pushing to a new leg higher, followed by more consolidation, etc. Does that mean we're close to another push higher? I suppose, if this trend is going to continue.




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

Tom Crowley


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