TSP Talk Blog

What a week for the stock market as it was up against not only earnings from some major market movers, but an FOMC policy statement, and a jobs report. We went into Friday with some losses in the major indices for the week before the Goldilocks jobs report came out and triggered a big rally, taking them out of the red for the week. The Dow, Nasdaq, and S&P 500 gained 0.75%, 1.58%, and 0.96% respectively, while small caps led the way in the TSP funds with a 1.58% gain.

Daily TSP Funds Return More returns

The small caps inched above the highs from prior in the week while the Dow, Nasdaq, and S&P 500 are just below last week's pre-Fed high.

Last week (Thursday) I reminded you that "many times a big move off of an FOMC meeting is reversed in the following days" and we saw that happen on Friday, but that is also true for large moves off an emotional jobs report. The jobs report was a "Goldilocks" report because not only did we see a big beat in the number of jobs created, a new 49 year low in the unemployment rate, but the key may have been that wage growth missed estimates by a tick and that helps keep the inflation hawks, and the Fed, away who spooked the market last Wednesday being vague about concerns over inflation.

So we would be entering the new week with the bulls having the momentum again, but once again I question whether investors are getting too overly confident. We should probably be wary when we see headlines like this one on Friday on Bloomberg... "The U.S. Stock Market Can’t Stop, Won’t Stop Its Endless Rally"

I now see that the futures opened sharply lower (Sunday evening) because China may be backing out of the trade negotiations after President Trump threatened to lift the 10% tariff up to 25% next Friday. So, unless something changes overnight, it looks like Friday's gains could be gone already.

Earnings season is still winding down with about 80% of S&P 500 companies, and from here the market does have a bit of a headwind with the "sell in May, and go away" seasonality issue, and this is about the time that the bullish bias wanes.


Chart provided courtesy of www.sentimentrader.com

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The S&P 500 (C-fund) rallied almost 1% on Friday and pushed up toward last week's highs, but falling just short. Friday's action created an open gap that is a little less traditional. A traditional gap is one where there were no trades made between the low price on one day and the highs the prior day. The blue boxes below show that. But there are also gaps when the opening and low price on Friday of 2929 is above the closing price - in this case Thursday's closing price of 2918, and the gap isn't filled during Friday's trading. They happen all the time and are less self-fulfilling because they are tougher to see on the charts, but the reason gaps get filled is still the same so 2917 may be a pullback target in the short-term, if the upside momentum ever subsides. (I wrote the prior text before the futures opened sharply lower and it looks like the gaps may get filled right away, unless something changes overnight.)




The longer-term chart shows that we had a failed breakout after the Fed sent stocks lower on Wednesday, but Friday's close is sitting basically right on top of those old highs from September.




The DWCPF (S-fund) had a big day and did make a higher high testing some rising overhead resistance, but those sure look like bearish rising wedges.




And the longer-term is still lagging behind the large caps as it is well below the all-time highs from late summer.




The EFA (I-fund) had a good day on Friday and the dollar was down sharply helping its case.




China's Shanghai is not part of our I-fund but clearly it is a global player and impacts the global economy so we'll keep an eye on this recent decline in China's stocks. Was it already reacting to troubles on the trade front?




The price of Copper also broke down last week, but rallied on Friday's jobs report. The key area here is 2.85. It needs to get back into the trading channel and back above the 200-day EMA.




The price of oil has been pulling back in recent weeks and the stock market is certainly paying attention. It got a bounce off the 50-day EMA on Friday so it may be trying to stabilize, but like copper, the rising support line has already been broken here so we'll see if the rallies start to get sold now.




The yield on the 10-year Treasury broke down from bear flag last week but all of that strength reversed after the Fed's talk of inflation still being a potential concern. The rally in the yield ran all the way back up to the 50-day EMA and stalled before eventually pulling back again on Friday after the wage data in the jobs report. That 2.575% area and the 50-day EMA seem to be the line in the sand here and as long as it stays below there, the F-fund may be in play.




The AGG (Bonds / F-fund) was up modestly on the day, bouncing back from the sharp Fed induced sell-off which created a false breakout. That 107.90 - 108.00 area is the support area to watch now, but if we're using technical analysis I'd rather watch that yield chart above where 2.575% needs to hold on the upside.




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

Tom Crowley


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