TSP Talk Blog

Stocks continue to rise and fall - mostly rise lately, on the same headline -- for the last 18-months! New "in-person" trade talks are expected next week between China and the U.S., and that again lifted stocks as the on again off again negotiations move ahead. Despite this, the White House said it could still take months before a deal is reached. The Dow jumped 177-points, and the gains were broad, spanning most major indices.

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I sound like a broken record, and I don't have the best record to go on this year, but with the internal weakness we are seeing in the indices, selling these kind of headline rallies seems like a good idea. That said, it hasn't been a good idea for most of the year, so what do I know?

We did see stronger breadth yesterday with about two stocks up for every one down, but surprisingly less than 50% of stocks in the S&P 500 are above their 10-day moving average, and if I understood how someone explained this on Tuesday, only 52% of socks on the NYSE Index are above their 200-day average. That seems incredibly low considering we're very close to all-time highs in the Dow, S&P, and Nasdaq. And again yesterday, there were more new 52-week lows on the Nasdaq than new 52-week highs.

To give you an idea of how strange this is, the Semiconductor Index is very near all-time highs and the SOX has rallied 45% this year and about 15% since this time last year despite the fact that year over year (2018 to 2019) earnings in that sector are lower this year. How does that make sense?




Chipotle came out with earnings yesterday and the stock ran up to new all-time highs in after hours trading. It's up 70% this year. Crazy. How about Snap Chat? It's up over 100% this year and they did $388 million in revenue in the last quarter. I may be out of touch, but I don't even know what they do. Sounds like a camera chat room? Who is giving them that kind of money?

And all of this is happening on the eve of interest rate cuts geared to stimulate the economy, an economy with the lowest unemployment rate in 50 years, and a stock market at all-time highs. I've been shaking my head in disbelief a lot this year, but all the while the price action has been trying to tell me to be more bullish.

But while the price action in the indices is doing just fine, there's a whole different story being told under the surface. The market doesn't usually give you a lot of time to sell the all-time highs, so maybe we go higher, but whoever has been buying this week is doing so with a lot of red flags flying. But I guess what else are people going to do with their money, put it in 2% bonds or 1% savings accounts? There is one difference... the only losses those savings accounts will have is falling behind the pace of inflation. If historical valuations for stocks eventually kick in, we could see years of those annual returns gone at some point in the not so distant future.

As I am writing this I saw the futures dip slightly on the news that the Department of Justice may open a broad antitrust review of big technology companies - Facebook, Amazon, Apple, and Alphabet (Google). That's basically FAANG without Netflix. Those have been the market leaders for years, and this comes right before most of these are about to report earnings, which makes things interesting.

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The S&P 500 (C-fund) bounced off that short-term rising trading channel's support line (blue) and the old high has held as support as well. The open gap has escaped being filled so far. It's tough to argue with the action, but as I continue to dwell on, most stocks are not doing as well as this index suggests.




The DWCPF (S-fund) continues to hold up well, but the index remains below the May high and the old 2018 highs so there's some relative weakness here, despite the recent action.




Despite a spike higher in the dollar, the EFA (I-fund) had a good day and may have broken out of the bull flag we mentioned yesterday.




I don't know if this is anything, but I posted this chart in the forum yesterday explaining a possible tendency of China's Shanghai Index to lead the S&P 500 by a couple weeks or more. The Shanghai index peaked in April this year, and the S&P peaked in May a couple of weeks later. The Shanghai basically bottomed in mid-May, and the S&P 500 made a low in early June. The Shanghai made another peak earlier this month, and the S&P made a high on July 15. Now it appears the Shanghai is close to breaking down from a head and shoulders pattern. I'll keep an eye on this.




AGG (Bonds / F-fund) was down as yields rallied. So far the top of that gap has held as resistance. It's early but interesting that it stopped there.




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

Tom Crowley



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