TSP Talk Blog

Stocks were very flat on Monday but once again they traded in a fairly wide range considering the standstill. Yesterday the range was 2980 - 3000 on the S&P 500, which is closer to the lower end of that 2980 - 3020 range that we have been in for the last couple of weeks. The Dow gained 15-points and it was flat city in most major indices, although the Transports were down and continue to lag while clinging to support. The I-fund is also lagging with some recent strength in the dollar.

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The indices remain near, but just below, recent highs. The bulls have been unable to muster a breakout, yet the bears can't seem to put any more pressure on than to keep the indices flat and in a range. The question is whether the bull are just holding back while building up strength during this consolidation period, or are they using up energy just to keep the indices from falling?

What's interesting about stocks being near the highs is that the world knows about the economic slowdown in Europe. Growth is dismal, particularly in Germany, and their interest rates are showing it with bond yields pinned below 0%. A recession is all but a foregone conclusion for Germany's future. Yet the European stocks markets are doing about the same as the U.S. markets with gains around +20% for the year. How's that you say? That's right... how is that possible? Is this a bubble, a market feeding on easy money, or is the market sensing a change in the tide coming?




The U.S. economy is doing comparatively better and that is bringing in a lot of foreign investors - not only into our stock market, but into bonds where a 1.7% 10-year T-Note yield looks attractive to them compared to their negative yields.

Something is going to have to give at some point, but whether that is next month, next year, or later, who knows? It always seems to take longer than you would imagine, and at some point investors start to dismiss any bad news, instead staying with momentum, whether justified or not.

That is not a bad approach, but you have to be nimble. You can't just buy and look away for six month. Once any downturn starts and the dip buying slows, that's when the wheels can fall off. But again, that could be down the road and those who pay attention can continue to buy pullbacks, but taking profits when you can (and repeating that) will likely pay off more than buying and holding over the next few years.

As I mentioned yesterday, my opinion, which is easily revisable, is that this market wants to move higher but perhaps we need to get past September and perhaps buy any pullback in the historically volatile month of October. Of course the market rarely gives us what we want or expect, and that's why I rely almost exclusively on the non-emotion signals of our TSP Talk Plus trading system.

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The S&P 500 (C-fund) rallied off the morning lows in an attempt to get back Friday's gains, but it ran out of steam and slipped back to break-even on the day to the disappointment of the bulls who can't seem to make any headway on the trek to new highs as it sits about 1% below those July highs. After an initial rally to start the month, the index has remained in that blue trading range since. Filling that gap near 2940 would not be a bad thing at all technically, but it must hold in that area if it does fill the gap.




The S-fund was also flat on the day and remains in what could be a bull flag. There's no reason to think it's anything else, except maybe if the S&P 500 rolls over and filled the gap we just mentioned. The S-fund would likely follow along, and that would negate the bull flag.




The Transportation Index was the laggard again yesterday and has been since those earnings from FedEx a week ago. The 50 and 200-day EMA are now being tested and must hold, or the open gap near 10,100 would likely be the next downside target.




The EFA (I-fund) hit a "sort of" double top as the 66 area has been holding as resistance since it fell back below that in early July. There's also a bullish looking flag forming so it may be trying to build up strength to make an attempt at another breakout.




AGG (bonds) broke above that key resistance area that we were watching, but it backed down to close right back on the double dose of support (blue) and resistance (red) lines. That's a typical negative reversal pattern, but that interesting support from those lines could negate that.




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

Tom Crowley


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