TSP Talk Blog

The S&P 500 hit fresh new highs on Friday morning, but the early rally stalled and the indices drifted lower into the close. The Dow ended the day down 34-points, and while the losses were minimal, the technical action was more of a concern. The new high didn't quite hold so we head into the new week with the question of whether we see a breakout, or a possible a failure at the top of the large trading range that the S&P 500 has been in since early 2018.

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The small caps have certainly been volatile lately with big moves in both directions compared to the large caps. The I-fund held up a little better as the dollar gets beaten up with all of the interest rate cut talk. Bond yields rallied on Friday pushing bond prices and the F-fund down sharply.

Options expiration week may have held stocks up last week but now they face the normally less favorable post-options week, and that may have been why we saw some very late selling on Friday.

The price of oil has certainly helped the S&P 500 this month as it has rallied back over 10% from the early June lows because of the turmoil with Iran, but after being in a sharp downtrend since late April, it is now facing the resistance of the 50-day EMA and after breaking above it intraday, it closed just 3 cents below the average on Friday. This may be a make of break area, not only for oil, but for the S&P 500 since oil has set the tone for stocks for much of the year.




There's more than 5 weeks before the next Fed meeting and the expected interest rate cut. In the interim we'll get a new jobs report, perhaps some clarity on the China trade deal as Trump and Xi are scheduled to meet, 2nd quarter earnings will be released, and the conflict with Iran will either calm or escalate. So there is a lot going on and with stocks already rallying to new highs last week, have they gotten a bit ahead of themselves, pricing in all positive outcomes?

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The S&P 500 (C-fund) popped into new high territory early on Friday but failed hold into the close, and instead actually closed near the lows of the day. There's an open gap near 2900, which would also be close to the old resistance level, so a pullback to that area seems like a technical possibility if we don't see new highs soon.




The weekly chart shows the long 18-month trading channel, which has been sloping slightly higher, being tested again. It has been consolidating in this sideways base for some time so when it finally does breakout, it could be with some authority. The question is whether it can under the current circumstances. Yes, interest rate "should" be coming down next month and that's always welcomed by investors, but the reason for the rate cuts may not be. A slowdown in the economy and a rally in oil triggered by conflict in the Middle East don't seem like good reasons for stocks to make new highs. Maybe investors should see how earnings come in next month before pushing stock prices to record highs?




The DWCPF (S-fund) was down sharply on Friday. It's too early to call it a peak, but the bulls certainly don't want to see a lower high being created at this point. Lower interest rates favor small caps who rely more on credit, so the bulls want to see them leading rather than lagging in this environment.




The Dow Transportation Index is also lagging badly, and after breaking above the 200-day EMA last week, it slipped right back below it on Friday, but it is just above the 50-day EMA. The big negative reversal doesn't bode well technically for the start of this week. Higher oil prices tends to add pressure to this sector and although we haven't seen it fall with oil rising, it is obviously still struggling compared to the S&P 500.




The EFA (I-fund) was down on Friday creating a failed breakout on the chart. There are still a few good sized open gaps below so it would seem less likely that we'd see a breakout without filling some of those gaps first.




The dollar was down sharply and that may have made the I-fund look a little better than it did. It is now below that longer-term rising channel so are we seeing the bull market in the dollar starting to crack?




The AGG (Bonds / F-fund) was down sharply and moved back down into the rising trading channel after a couple of days of trading above it.




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

Tom Crowley


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