TSP Talk Blog

Stocks attempted to rally on Thursday, and while we did see some modest gains in most of the indices, there was clearly no rush to get back in as the highs of the day were made in the first hour of trading. The Dow gained 43-points and we saw similar percentage gains in the S&P 500 and Nasdaq, but small caps and the Transports could not hold onto early gains, and both balked near their old broken support lines.

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Stocks were up early when bond yields were rallying but yields reversed course and sold off into the close and actually closed with small losses. The 10-year / 90-day yield curve, which everyone is watching, is getting more deeply inverted. The last time it inverted was before the financial crisis, and while that's a bad sign for the economy, you can see that the stock market did not peak for more than a year after that deep inversion in mid-to-late 2006.




As you'll see in the charts below it is now just a matter of how much momentum the downside has, and how much strength any rebound can muster. The current pullback pattern is currently similar to the pullbacks from the prior two peaks so we may have some clues.

On Thursday evening President Trump tweeted, "On June 10th, the United States will impose a 5% Tariff on all goods coming into our Country from Mexico , until such time as illegal migrants coming through Mexico, and into our Country, stop.", and the futures were falling on the news.

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The S&P 500 (C-fund) rallied early, basically filled the open gap from Wednesday, then drifted lower. It did create a spinning top candlestick which is a sign of indecision and possibly a turning point, and if you watched the market yesterday you saw that back and forth between the bulls who are looking for an oversold bounce, and the bears who are now selling rallies.




It's not the best looking chart and it could easily rollover for another leg down, similar to what we saw at the prior peaks. This 5% decline has been fairly modest so far in comparison.

In this longer-term daily chart I'm comparing the three peaks and wondering if we'll see a similar reaction. First thing I notice is that the initial pullbacks were more severe than this current one (red boxes). But we did see one of those "h" pattern breakdowns already. Is that enough to trigger an oversold rally? But even if it does, you can see that those rallies were short-lived, but not small so to make them unplayable.




The DWCPF (S-fund) did not close in positive territory so the small caps continue to lag, and while it's not shown here, this fund is still well off its fall of 2018 high near 1500.



The price of oil took another hit yesterday as concerns of an economic slowdown continue to weigh on it.




The EFA (I-fund) tried to fill its open gap but didn't quite make it. The bear flag may have turned into an "F" flag. The lows on Wednesday are key right now, but other than the reversal that day, there's not a lot of support below.




The yield on the 10-year rallied early on Thursday, as I thought it might, but I didn't expect it to rollover again like it did, and it actually closed lower than Wednesday's close. That helped the AGG to yet another gain, and the resistance I thought could hold there, did not.




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Thanks for reading. Have a great weekend!

Tom Crowley


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