TSP Talk Blog

Stocks survived a negative open on Tuesday, and a weak close, to post slight - to - modest gains across the board. The relentless rally off the December lows continues and while it seems quite extended, investors continue to dump money into the market, possibly they fear missing out on a trade deal announcement.

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The S&P 500 has now come back to within 11-points of where it was to start last December, just before the major decline started. The old highs were made 2-months before that in October, but that was quite a sell-off in December and a quick ride back up that elevator. The Fed's reversal from hawks to doves on rates, and trade optimism have been the catalysts.

Now, as the market refuses to fall and continues to price in a trade deal, the chances of something going wrong increases. If we get a trade deal, perhaps we get another quick rally, but I would think we would see some profit taking at that point. However, if we don't get a deal it is probable that the bears would show up again in a hurry. Kristina Hooper, chief global market strategist at Invesco in New York says, "If talks fail and additional tariffs are applied, I do believe stocks could fall through their December 24th lows.”

Throw in the fact that earnings estimates are now near 0% for the first quarter and there is a recipe for trouble for this market, which gets more expensive every day.

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The S&P 500 / C-fund continued to chug along that rising trend, which might be looking more like a more bearish wedge at this point. There is some resistance at the 2800 area, but this market hasn't had much of a problem lately crossing lines that should have been more difficult.




The longer-term chart going back to the October high shows the large inverted head and shoulders (H&S) pattern that we mentioned yesterday, and we're now waiting to see if this can breakout above the resistance of the neckline, or if the right shoulder needs to do some backing and filling before we see a breakout. An imminent breakout seems unlikely, but at this point I don't think too many would be surprised if it happened.




The EFA (EAFE Index / I-fund) may have already broken above its neckline of its inverted H&S pattern. It also moved above its 200-day average yesterday. There wasn't much of a right shoulder on that one but I suppose it qualifies. It was the weakness in the dollar over the last two days that helped it breakout.




And here is the chart of the dollar falling sharply on Tuesday, pulling back after making new highs last week.




The price of oil also enjoyed the weakness in the dollar as it has been rallying over the last two days. There is some potential resistance near 57.50, then the 200-day EMA in blue.




The AGG (Bonds / F-fund) moved to a new leg higher after it broke above last week's highs, so the rising trend in bond prices continues and bond yields continue to sink. Ironically this is happening while the price of gold is making new highs, which is interesting. Gold tends to go up in inflationary periods, as do bond yields, but yields are near recent lows. I'm not sure what to make of this.




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

Tom Crowley


Posted daily at TSP Talk - Market Commentary

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