TSP Talk Blog

Stocks were at their lows of the day yesterday with about 45 minutes left in the trading day, then proceeded to close near the highs of the day. Something triggered a big spike in the last half hour, but I haven't really heard what it was. The Dow gained 102-points on the day, and late buying is usually a sign of smart money, but as you'll see in the information below, you have to scratch your head to figure out who is buying so enthusiastically in this environment?

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Here's a closer look at that strange close yesterday...



It sounded like a sucking sound... did you hear it? But then again, fighting strong market action has not been a winning formula this year.

The economy and the stock market don't necessarily move in the same direction all the time so comparing the two isn't always an apple's to apple's comparison. But certainly a market recession will hurt company earnings and companies' stocks tend to react negatively.

We've talked about economically sensitive commodities like copper and oil falling recently, but yesterday oil rallied fairly sharply and since the stock indices do have a tendency to follow oil to some degree, perhaps that sparked some buying in the stock market? The problem is, oil wasn't up because demand increased. It rallied because of the oil tankers being attacked in the Gulf of Oman near Iran yesterday. It was oversold and probably due for some relief, but rallying on an attack is not what we want to see.




Stocks also moved higher just before the bell yesterday after a slightly weaker than expected initial jobless claims report was released. Again, weak economic data has the interest rate doves buying reflexively. Well, they may be applauding more loudly after this from Morgan Stanley...

"Morgan Stanley’s Business Conditions Index, which captures turning points in the economy, fell by 32 points in June, to a level of 13 from a level of 45 in May. This drop is the largest one-month decline on record and the lowest level since December 2008 during the financial crisis, according to the firm."




Investors must have short memories because back in 2007 when the Fed started cutting rates, and it was the last time they were cutting rates, the market wasn't as enthusiastic. Sure, there may have been some short-term rallies on the cuts, but traders were certainly selling those rallies from mid-2007 through the end of 2008. Here are the rate cuts and the chart of the S&P during that time.




The next FOMC meeting is Tuesday and Wednesday of next week. To cut, or not to cut? The market is waiting! The futures market is showing a 31% chance of a rate cut next week, but that rises to an 89% chance of a cut by the July FOMC meeting.


Administrative Note: I may be redesigning the page URL's in the coming days because there was a very strange, very sudden drop in the number of people reading the free market commentary page, www.tsptalk.com/comments.php, and it seems to have happened almost overnight. I am not sure what caused it but what makes sense would be that perhaps some government agencies or military departments started blocking the page? Just a guess. I did noticed that we still get hundreds of views on the old commentary page which was comments.html and out dated, rather than the current comments.php, so I've added a redirect. php files may be interpreted as program files and may be more apt to get blocked by virus programs.

If it turns out that traffic is really getting as low as our recent reports suggest for that page, I don't see a reason for me to put much time into them anymore, but because other pages of ours have actually increased during that same time, I am inclined to believe that is not the case. Our TSP Talk Plus subscribers get a very similar commentary with various additional information, and the page views there have grown, so that is why I am speculating on possible page blocks or other technical issues such as our firewall. I will play with a few options to see if it helps and I will keep you posted on any URL changes. Thanks.

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The S&P 500 (C-fund) popped up late to close at its highest level since the rally off the recent lows. That area around 2900 has been stubborn so any further upside could get more inventors interested. The angle of incline has been unsustainable, but now that it is broken, does it need more of a consolidation before making another run at the highs? You would think so, but the way folks were buying late yesterday, some investors may not be concerned about anything. I would suspect that recent buyers will get burned, but then again, there's a lot of us out there expecting a pullback, and that may be enough to keep it from happening.




The DWCPF (S-fund) led on the upside yesterday but remains below some key resistance, while remaining above that key 50-day EMA.




The EFA (I-fund) was flatter than U.S. stock funds and that may be a combination of a small rally in the dollar, and the late rally in US. stocks yesterday.




The yield on the 10-year Treasury Bond was down yet again giving the AGG (Bonds / F-fund) an opportunity to close at a new high again. Relentless, is all I can say, and the bond market does not appear to be too excited about the economy. It's also luring the Fed to cut rates.




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Thanks for reading. Have a great weekend!

Tom Crowley


Posted daily at www.tsptalk.com/comments.php

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