TSP Talk Blog

Stocks picked up a healthy gain on Monday but the action wasn't all that healthy. How is that possible? The indices rallied out of the gate as the emotional Monday morning buying was triggered by the announcement late Friday of the Mexican tariffs being called off. The Dow was up 226 points at the highs but as we neared lunchtime on the east coast, we started to see the selling kick in, and the indices closed at the lows of the day creating a negative reversal on the charts. The Dow did close up 79-points or 0.3%, and was the laggard on the day, while the Nasdaq led with a 1.1% gain.

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Friday's weak jobs report had the interest rate doves buying and that carried over into Monday with the help of the Mexican tariff news, but the indices had become quite stretched to the upside in just 5 days of trading and was hitting some resistance, so seeing some profit taking was inevitable. Some backing and filling seems likely but since the S&P 500 is near the top of that long-term trading range, the question most market timers are asking is whether new highs are possible - or whether another trip to the bottom of the range is more likely.




As we talked about yesterday, the Fed Funds futures have already priced in 3 rate cuts for 2019, and a fourth going out 12 months. What does that mean for market pundits? Are we now hoping that the economy continues to slow down to justify these rate cuts, and will strong economic data cause sell-offs because everyone is hooked on the possibility of rate cuts? It should be an interesting summer of trading.

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The S&P 500 (C-fund) blasted off at the open on Monday as investors couldn't wait to jump in after last Friday evening's announcement on the Mexican tariff deal. They piled into stocks in the morning and the S&P has now hit all of our possible upside targets (expect new highs) with ease, but the rally faded as the day wore on. Now the market needs to dodge a potential Turnaround Tuesday after Monday's negative reversal.




The DWCPF (S-fund) posted a decent gain but those long negative kangaroo tails usually mean some short-term selling is coming, so barring any new tweets or headlines, I'm expecting a little backing and filling in the coming days.




The Dow Transportation Index gained an impressive 91-points, or 0.90%, yesterday but it had been up another 130-points before it hit a brick wall and reversed at the 50 and 200-day averages.




The EFA (I-fund) is now sitting between two open gaps - one at 66.50 and the other down below 65. After breaking below the rising trading channel, it is now trading above the more recent descending channel. Being above the 50 and 200 day averages, we have to give this a bullish nod, but it may need some help getting above that 66.50 gap. The dollar was up slightly yesterday but it experienced a negative reversal day, which could help the I-fund initially on Tuesday, but there's some strong rising support coming up for the dollar so it may be a wash.




The AGG (Bonds / F-fund) pulled back from the top of its 2019 rising trading channel. Yields rebounded from some extreme oversold conditions.




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

Tom Crowley


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