TSP Talk Blog

Stocks rallied to end the month of March on Friday, and it put an exclamation point on a great first quarter for stocks. The Dow gained 211-points and the gains also pushed the S&P 500 just north of that long-term resistance area that we have been watching. Bond yields were up giving stocks a bonus catalyst, and there was some positive talk on the China trade Front.

Daily TSP Funds Return More returns

Larry Kudlow came out on Friday on CNBC saying how strong the economy is, how strong the jobs market is, etc., then followed that by saying the Fed should cut interest rates by 0.50%. The market rallied on this, but you can probably see the flaw in that analysis. A 0.50% rate cut might be a play the Fed would make if there was a financial / economic emergency. Why would they do it if everything is strong?

The inverted yield curve is of course a concern and a rate cut would help that and perhaps alleviate recessionary concerns, and actually the yield curve just barely un-inverted (is that a word?) on Friday, which was probably part of the buying enthusiasm, but it was also the date that helped...




It was a Friday on the last day of the month, and the final day of the 1st quarter which has been a great one for stocks. Getting a rally seems logical in that many money managers like to pad their portfolio with the quarter's winners for their quarterly reports. As our Plus subscribers know, the "dumb money" is very bullish right now, and money managers have been lagging the S&P 500, so this strategy to pad reports is typical, but they may also look to sell some time this week, once their portfolios for the first quarter are already in print. So the question is whether the dumb money pays the price in the second quarter or if they keep getting rewarded while the smart money, who has been much more bearish, sits with a lot of cash on hand waiting for a pullback?

This kind of environment can last a long time, but as we saw in January of 2018, and again in late 2018, the "correction" can be swift and sharp and the dumb money usually doesn't know what hit them by the time they get their investment statements and see what happened.

The month of March was a good one for the S&P 500, making it three strong months for the large caps to start the year, and one of the best first quarters in a long time. Small caps were actually down 1% for the month, but their strength in January and February kept it the top performing TSP fund for the year.

It has been a great rally off the lows and a fantastic start to the new year, but we also have to remember that the S&P 500 is just getting back to where it was in early October, and it is still below January and October 2018 peaks. The hard work may be starting now.




We have some contradicting issues. I've talked about stock price valuations (margin adjusted price / earnings ratios) rivaling those other major market tops. On the other hand having three consecutive 1% + monthly gains for the S&P 500 after a 12-month low has historically produced solid gains going forward.

We have signs of an economic slowdown, but the Fed has jumped in to assure markets that they are done cutting rates.

So there are good arguments on both sides. My approach is normally to go to the charts for clues. Being at the top of a major trading range is a concern and a plus for the bears who expect this to be another peak. But should we see a breakout above those tough resistance areas, the bulls will have the better argument, technically, and with the futures are up big while I write this on Sunday night, their argument may be best right now. Monday morning gaps can be emotional and reverse during the day, but obviously not always.

---

The S&P 500 (C-fund) is attempting to make another higher low as it reaches up toward the March highs. Technically, it looks fine but we'll see if the new month / new quarter brings with it any kind of a reversal. It doesn't look like it initially with the futures up big Sunday night, but sometimes the reversal happens on the 2nd or 3rd trading day of the month, if not the first. In March we did get a pullback that started on the second trading day / first Monday, of the month, and you can see that there is a pattern of reversal when a new month starts...




The DWCPF (S-fund) popped back above the 20-day EMA and while there is some resistance near 1400 at a descending trendline, this is not a horrible pattern and could be considered a bull flag.




The Dow Transportation Index also has some resistance concerns but it has certainly come to life since that sharp sell-off following the FedEx earnings warning a coupe of weeks go.




The Financials rallied sharply early on Friday but pulled back quite a bit once it hit the 50-day EMA, and that kept that small bear flag alive




The EFA (I-fund) remains above key support, but there's a bear flag forming and that may cause it to test that support again.




The AGG (F-fund) was down on the day but closed well off the lows as yields rallied early, but faded as the day wore on.




Read more in today's TSP Talk Plus Report. We post more charts, indicators and analysis, plus discuss the allocations of the TSP and ETF Systems. For more information on how to gain access and a list of the benefits of being a subscriber, please go to: www.tsptalk.com/plus.php

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

Tom Crowley


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

The legal stuff: This information is for educational purposes only! This is not advice or a recommendation. We do not give investment advice. Do not act on this data. Do not buy, sell or trade the funds mentioned herein based on this information. We may trade these funds differently than discussed above. We use additional methods and strategies to determine fund positions.