TSP Talk Blog

Stocks rallied Thursday, following through on the Wednesday rebound, and the pre-holiday reversal / rebalancing action is playing out the way we talked about in yesterday's commentary. The question is, will we get the the post-holiday resumption of the larger trend? The Dow gained 326-points, with 1% plus gains across the board.

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I'll be busy through the holiday weekend so I'm making this quick. I won't be around for much of the day although I will still be keeping an eye on things in case alerts need to go out before the transfer deadline for our premium members.

The losses from President Trump's tweet last Friday have now been erased and we got a move right back to the top of the bear flag and the 50-day EMA that we have been watching. That resistance has been as stubborn as the support at the 200-day EMA has been in recent weeks.

I've talk about how tough it has been to negotiate this whippy action with only 2 - 3 transfers allowed each month. If you bought at the bottom of the flag and sold at the top of the flag earlier this month, you had a great trade, but you've also seen your gains evaporate and recover several times since then, so bull or bear, it's been a little frustrating. More flexible non-TSP account have an advantage.

I'll just post the S&P 500 index chart below today to show the progress, and I'll leave Thursday's commentary below that where we talked about that rebalancing, holiday reversals, and how light volume trading can make the indices vulnerable to be "pushed around" by a few big trades.

Other than that, enjoy your holiday weekend, and we'll see you on Tuesday.

Per www.tsp.gov: "Some financial markets will be closed on Monday, September 2 in observance of the Labor Day holiday. The Thrift Savings Plan will also be closed. Transactions that would have been processed Monday night (September 2) will be processed Tuesday night (September 3), at Tuesday's closing share prices."

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The S&P 500 (C-fund) closed above the 50-day EMA for the first time in a while and it moved right back to the top of that bear flag. Being such a large bear flag we also have to consider the possibility that it is a bottom forming base that has been holding at the 200-day EMA. However, I am still concerned about it possibly being a fake out and the pre-holiday action getting reversed next week. Today's action may not give us many more clues since it could be just another light volume day with the pre-holiday quirkiness.




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 holiday weekend!

Tom Crowley

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08/29/19

Stocks rallied on more light trading volume led by a jump in the price of oil and energy stocks. The Dow gained 258-points, or 1.0%. The beaten down Russell 2000 small cap index gained 1.15%, but our S-fund (+0.74%) hasn't been keeping up with the Russell as it generally does. The Transports were also big winners on the day jumping 1.77%. The S&P 500 and Nasdaq both had more modest to moderate gains. The dollar rallied yesterday, which weighed on the I-fund.

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The price of oil, and energy stocks in general, helped lift stocks yesterday. The energy sector has been a major drag on the stock market and yesterday's action saw it, and a few other lagging sectors, lead on the upside which brings to mind the holiday reversal phenomenon. I've talked about it often so I won't go too into it, but quickly - there is a tendency for stocks to move in the opposite direction to the larger trend right before a major holiday weekend. That larger trend then tends to resume shortly after the holiday weekend. We'll see.

The fact that bonds rallied so much this month could be setting up a late August / early September positive bias as money managers rebalance their portfolio's stocks to bonds ratio. A basic example would be if a money manager's investment prospectus says they keep 70% of their assets in stocks, and 30% in bonds, and bonds rally 10% while stocks fall 10%, in order to keep that 70/30 ratio for the next month, they have to sell bonds and buy stocks.

The trading volume is normally light this time of year and when we see a 250+ point rally in the Dow, it could be as a result of the rebalancing by just a few large money managing firms.

The point is, the move up or down, depending on how a month is getting rebalanced, may not be a true indication of which way the market wants to go. When you combine that with those pre-holiday reversal tendencies, the short-term moves can get confusing. You can see false breakouts or breakdowns that were - not so much artificially manufactured because they are real trades - but the supply and demand that caused it may not be the same after the holiday or a few days into a new month.

I don't know if that's what's happening now. It feels like it a bit, but light volume, pre-holiday trading is not usually the best judge of what is going on in the market.

That makes short-term analysis, particularly technical analysis, and things like investor sentiment, get skewed. That's why trading volume gets light because, not only are folks on vacation, but many professional traders don't like to trade in environments like this. For at reason, barring any major events, I'll make today and Friday's commentary quick because the charts may not be telling the true story. As a matter of fact, they could be faking us out.

Per www.tsp.gov: "Some financial markets will be closed on Monday, September 2 in observance of the Labor Day holiday. The Thrift Savings Plan will also be closed. Transactions that would have been processed Monday night (September 2) will be processed Tuesday night (September 3), at Tuesday's closing share prices."

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The S&P 500 (C-fund) remains in that large red bear flag and the recent back and forth action may have created a small bear flag (blue) within the larger one. The moving averages have been key levels of support and resistance lately, and it's the 100-day EMA providing resistance now, while the 200-day EMA has held firmly as support all month.




The S-fund had a good day but remains below some key resistance. The 200-day EMA has been broken for a few days (and 4 straight closes), but what is fairly new is that yesterday's rally failed at an attempt to get back above the 200-day simple moving average - something I don't normally track unless it's getting in the way. That may be something to watch going forward.




The Dow Transportation Index had a big day but it is still just gyrating within that falling flag formation, which is below the 50 and 200-day EMAs. Meanwhile the 9700 level held again at yesterday's lows.




Here's the catalyst for the rally in stocks yesterday as the Energy sector led on the upside on Wednesday. The chart isn't as impressive as the headlines made it sound, although $56 is holding again.




AGG (F-fund / bonds) was mostly flat on the day after an early rally reversed. The blue rising channel seems to be the new trend, but if we see any of that rebalancing by money mangers in the coming days, it could threaten the top of the old channel (red), which has been holding as support for the last week.




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. We'll see you back here tomorrow.

Tom Crowley


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