TSP Talk Blog

Stocks ended the day rather flat in the major indices, but some weakness in the Transports and small caps. But the headline of the day was the reversal off of the morning highs as the Dow lost 14-points and that was 200 points off those morning highs, and the S&P had reached up to 2911 but closed back below 2900 at 2986, but still, it was just a 1-point loss. Maybe not a true Turnaround Tuesday, but the 6-day winning streak in the Dow, and 5-day streak in the S&P 500 did come to an end after those early gains were erased.

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We got a slightly weaker than expected Producer Price Index (PPI) report yesterday and today we get the CPI and estimates are looking for a gain of 0.2%. These inflationary type economic numbers are obviously being watched closely with the market already pricing in a series of interest rate cuts, so it will be interesting to see what happens if CPI comes in stronger than expected. Normally a good sign, but this market is has been applauding the weaker data so that the Fed will start to move.

Does anyone remember when stocks used to fall faster than they rallied? This recent rally has been extremely sharp, and we have seen a few like this over the last 18-months. But despite the push that put the S&P 500within about 3% of those all-time highs, about half of the S&P stocks are still 10% or more below their highs, suggesting that there's more internal weakness than the indices may be displaying.

But this market has been less about technicals and fundamentals, and more about headlines, tweets, rate cuts, and trade rumors. It has become tougher to trade in that momentum has trumped indicators and support / resistance. The fear of missing rallies has created a buy first, ask questions later mentality for many investors and traders once the market turns. That worked very well earlier this year, but as you'll see in the S&P charts below, it can often be a trap.

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Despite the negative reversal on Monday, the S&P 500 (C-fund) was able to move higher in early trading negating that negative reversal temporarily, but then produced another negative reversal and this one is a quasi negative outside reversal day. Quasi because it would have been more pronounced if the close was more meaningfully lower than Monday's close. That 2850 level has been a bit of a roadblock on a closing basis so far.




This S&P chart which goes back to the January 2018 high shows the dramatic angle of the recent rally - something we've seen a few times since that first peak in early 2018. Only the one in January of this year worked out well, but that one was coming off a 20% decline off the all-time highs. The recent pullback was just a fraction of that. The one that this rally resembles the most is probably the one from November of 2018, which didn't tuen out so well. The current one is even longer than that one, but it's the "straight up" action that looks most similar.




The DWCPF (S-fund) did post a negative outside reversal day, but the bounce off of the 50-day EMA and the close off the lows may be enough to possibly consider it a push in regards to a reversal.




The Dow Transportation Index is still stuck below the 50 and 200-day averages, and its descending resistance line.




The EFA (I-fund) rallied but faded after it tried to push its way into the open overhead gap. Now it's well below that open gap and possibly reversing to pursue the open gaps below.




The AGG (Bonds / F-fund) dipped again as it pulled slightly further below the resistance line while it digests the recent gains. The CPI report today could be a bond market mover if there are any surprises. And with the stock market so sensitive to rates right now, it could also be a stock market mover.




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

Tom Crowley


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