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Upside momentum heading into next week's earnings

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It was another mixed day for stocks yesterday with the Dow gaining an impressive 228-points, and the S&P 500 adding about 7. Small caps and the Nasdaq were down, but we saw a strong rally in the recently beaten down Transportation Index, although like the small caps, they are still down more than 10% off their highs.

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Despite the record highs, the High Yield Corporate Bond Funds were down on the day, and more stocks on the NYSE and Nasdaq were down than up. Here's the NYSE advance / decline index which shows 186 more stocks down than up. Not a big deal unless this becomes a trend.




The bond market sold off yesterday on strong inflation data - the CPI report and lower jobless claims, yet the Fed banged the table for rate cuts again yesterday in front of the Senate, and you have to scratch your head and ask why? Stocks are at all-time highs, unemployment data is at historic lows, now we're getting stronger than expected inflation data, so it is all about trade uncertainty? For the CPI, it was the largest increase since January 2018, and what was the Fed doing in 2018? Raising rates.

As I mentioned in the forum yesterday, after raising rates last year, for the first time in a long time the Fed actually gave themselves some bullets in their arsenal to use for a rainy day when the economy needs help. Using the cuts now feels like they are shooting those bullets in the air and wasting that ammunition. I'm sure they know better than me, but really? Maybe the president's continuous pressure to ease is actually affecting their decision, because their insistence, rather than a wait and see approach, is a little puzzling.

Being on the sidelines while stocks are rallying is not sexy. For those of you in stocks, congratulations. Momentum appears to be on your side. Enjoy it. But this is how bubbles are made and we know what happens to bubbles eventually, so be careful about getting overly complacent.
For what it's worth, according to sentimenTrader.com, "Whether it’s due to investors’ reactions to Fed chairmen or just simple seasonality, stocks have struggled after the July version of the Monetary Policy Report to Congress. Since 1996, the S&P was positive a month later 41% of the time, averaging -0.7%. When it was within 1% of its 52-week high at the time, then it gained only 1 time out of 6 attempts."



The S&P 500 (C-fund) reached up to 3000 again but just fell short at the close: 2999.91. Close enough. You can see that it is remaining below that old rising support line, but that's a nice bullish angle. The index is now about 95-points above the 50-day EMA and 187-points above the 200-day EMA, so it's getting stretched. The gap remains open (blue) and that will always have folks looking over their shoulder as a possible short-term pullback target.




The DWCPF (S-fund) were down slightly but bounce off the morning lows impressively. There's a bullish looking flag within the current ascending trading channel, but it seems to be tentative heading into that May highs.




The Dow Transportation Index was down early but saw a big reversal to the upside and it is back flirting with that 200-day EMA, which it fell below earlier this week.




The I-fund was down slightly but also came off its lows after filling in that small gap from Monday morning. That 65.50 area looks to be a key level of support, now that it climbed back above it. There are two good sized open gaps on the charts that are within reach - one above and one below the current level.




Yields popped on the strong CPI and jobless numbers suggesting that inflation may be picking up. The 50-day EMA is within reach but it has been a roadblock for months now.




AGG (Bonds / F-fund) was down on the rally in yields and it is looking like it may want to test that next support line and the 50-day EMA may also be in play.




Read more in today's TSP Talk Plus Report. We post more charts, indicators and analysis, plus discuss the allocations of the TSP and ETF Systems. For more information on how to gain access and a list of the benefits of being a subscriber, please go to: www.tsptalk.com/plus.php

Thanks for reading. Have a great weekend!

Tom Crowley


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

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S&P500 (C Fund) (delayed)

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BND (F Fund) (delayed)

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