TSP Talk Blog

Stocks were mixed but mostly flat on Monday as the Dow was down 84-points, but it actually would have been positive without Boeing's nearly 5% decline. The S&P 500 was up 3-points, but the action was better than that since it had been down enough in early trading to wipe out Friday's gains, but the dip buyers showed up to push it near the highs of the day into the close. Small caps lagged closing slightly negative on the day, as did bonds as yields ticked up a bit.

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It's a momentum driven market right now, not an earnings driven market, which sounds a little scary, but momentum is not to be taken lightly. As the S&P 500 nears the old highs we have to applaud what it has been able to accomplish over the last 3+ months. It seems like it wants to at least test the old highs, which is now just a stone's throw away. But as it does near the old highs, who's still doing the buying? Who can't resist being in on this and must join the party?




My guess is that it's the same type of investors who bought the S&P 500 back in 2007 after it dropped sharply during the summer months, then spent the next few months climbing back, and eventually breaking through to a new high - similar to what we may be seeing unfold currently.




Well, the rest is history as those buyers turned out to be the "suckers" who couldn't resist buying an overbought market as we reached toward those new highs.




Of course there was a financial crisis unfolding back then, although few people knew about in 2007, so while the action looks good and the investment environment seems benign, there is an earnings recessions out there now and that could be the start of something.

To be sure, the momentum is on the bulls' side right now and the market doesn't typically peak straight away after an 8-day winning streak, but certainly the risk / reward going forward is leaning more on the risk side after gains like we've seen and investor sentiment this bullish. Again, it doesn't mean stocks will go straight down from here, but it almost certainly won't be as easy for stocks in the next few months as it has been over the last three.

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The S&P 500 (C-fund) nudged a little higher again yesterday, impressively shaking off a weak open that initially took away the gains from Friday's jobs report rally... but it came back. The apex is being squeezed in that rising wedge pattern as it rides below that overhead resistance line. The lure for a new high may be too strong for the bears to fend off, but like we saw above, that could turn out to be the end of the line.




The DWCPF (S-fund) was down slightly and stalled for a second day at the February highs. This consolidation looks good and may be a stepping stone for another leg higher, but you have to wonder why this index is still more than 6% below its all-time high near 1500 made last September?




The EFA (EAFE Index / I-fund) remains in the rising trading channel and has been hovering near recent highs for several days now. The dollar was down yesterday and gave it a little boost.




The AGG (Bonds / F-fund) was off slightly during the uneventful trading day in both stocks and bonds on Monday. Everyone seems to be waiting for the next catalyst.




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

Tom Crowley


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