TSP Talk Blog

Stocks opened higher on Friday, but like the prior week or so, we've seen more choppy back and forth action as the S&P 500 has traded between 2980 and 3020, and some of those days nearly hit the top and bottom of that range in a single day. Friday traded near the top of that range to start the day, and closed closer to the bottom. The Dow lost 160-points.

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Stocks were drifting lower on Friday after the highs were made near the opening bell, but they took a midday dive after reports that Chinese officials were cutting their visit to the U.S. short which of course hurt the trade negotiation.

There's talk of war with Iran, or at least some defensive maneuvering in that region after the oil field strikes last week.

Add to that another round of impeachment talks for President Trump, although when has that not been the case?

Meanwhile, while the things seem to be falling apart, the S&P 500 is still near all-time highs, despite Friday's losses. The late September seasonality is no friend to stocks, and October has a reputation of being a volatile month, but looking at the positive futures on Sunday night, and it looks like the bears don't have much of an appetite to keep the pressure on.

All I can say is that if the bears can't get it done over the next few weeks, and the bulls are able to make new highs, it could be a very strong 4th quarter for stocks. The credit market looks good. The economic data is still good, and the "Hard Economic Data" have topped expectations by the most in the last four years, according to Bloomberg. And any signs of wobbling is being met with Fed cutting interest rates and possible new rounds of quantities easing, if you can believe that.

The inverted yield curve we saw earlier this year indicates that a recession is very possible, but that would not be any time soon, and actually stocks have a history of doing well between the time that the yield curve inverts and the start of a recession. Will that be the case again this time?

The futures are indicating a strong open for Monday morning, but so far I just see them recovering Friday's late afternoon sell-off, and moving back to the top of the range that we talked above above. As always, Monday morning gaps can't always be trusted.

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The S&P 500 (C-fund) nearly touched the old highs on Thursday of last week, but the swings continued and it ended the day closer to the bottom of the recent trading range between 2980 and 3020. The large gap down near 2940 remains open, and that would be the top of the old flag formation, which could be a double dose of support - if it ever gets tested before a breakout.




The S-fund looks to be rolling over, although it could also be construed as a bull flag, which as the name suggests, tends to be bullish for stocks.




The Transportation Index has really been struggling since hitting that double top several days ago. It has now settled down close to the 50 and 200-day EMAs, which it may want to test. There is also an open gap down near 10,100 but it would have to fall through those EMAs to get there.




The EFA (I-fund) held up a little better but the dollar rallied late and U.S. stocks fell late so that may put pressure on the price of the I-fund on Monday.




The High Yield Corporate Bond Fund is still near all-time high indicating that the credit market is still on solid footing, although we are seeing a possible "rounded top" forming. New highs this week would negate that.




AGG (bonds) rallied as yields fell, but you can see the chart is testing resistance in the area that we have been watching - where the top of one trading channel is crossing the bottom of another trading channel, and so far it is holding. This could be a key pivot point for bonds.




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

Tom Crowley


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