TSP Talk Blog

Stocks rallied on Monday with the Dow gaining 97-points on the day. The gains basically grabbed back Friday's losses as the S&P 500 lost 16-points in Friday, and yesterday it gained back 15, so the choppiness continues, but the month ended on a positive note heading into October. The market had plenty of reasons to back off in September, but the indices are hanging pretty tough despite the noise.

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Although it was the end of the month and the end of the 3rd quarter yesterday, which had a "windrow dressing" feel to it, it was a somewhat quiet day with those modest gains as trading volume wasn't all that heavy. Since September was positive, we shouldn't be surprised that money managers were window dressing and buying some of the 3rd quarter winners to show them in those quarterly reports.

But what a month it was news-wise between the Fed cutting rates and inner conflict about what should be done, th trade negotiations going haywire, and new calls for President Trump's impeachment, yet we saw solid gains for the month so the market has been quite resilient when it had several reasons to sell-off.

As we have mentioned many times, today is a new month and often a new month can bring with it a new direction. Not always, and some of the changes in direction are just temporary, but I'd say with the latter half of September being sluggishly negative, there's a chance that October will start with some kind of positive reversal.




October has that reputation for be volatile, but overall it has some good historic averages. Being a 30 year chart below, 1987's crash is no longer in the numbers so it has improved in recent years. But you can see that there are some big up and down swings, and I don't see why that wouldn't be the case again this year with all of the political and trade chaos stirring. That could mean opportunities to trade, but of course with just 2 IFT's per month, it's not always easy to pick your spots exactly.


Chart provided courtesy of www.sentimentrader.com


According to CNBC: "Since 1950, Octobers have averaged a slight gain of about 0.9% for the S&P 500, according to the Stock Trader’s Almanac. The data also show that during pre-election years dating back to 1950, the market has been flat with the S&P 500 posting a 0.1% return on average."

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The S&P 500 (C-fund) rallied to end the month, and the index closed near the top of that flag formation that is not a classic looking flag because of the steepness, but leaning on the bullish side. New month, new direction? Maybe, and the bullish flag does give it an excuse to break to the upside. The 50-day EMA has held well, but the open gap near 2940 was never officially filled, which means we have to still consider that a possibility.




The S-fund did fill its open gap last Friday, which I failed to mention yesterday, but it remains below its flag formation, although it did recapture the 200-day EMA with yesterday's rally. I noted the lower high, which makes this different that the S&P 500's double top. Small caps do tend to like the 4th quarter, although that positive bias tends to start more in November / December.




The EFA (I-fund) continues to play within a decent looking bull flag after it was the highest returning fund in September. With European markets having growth issues, and the dollar continuing to rally, the I-fund was a bit of a surprise in September. And the prospect of a bull flag breakout is also a surprise.




The dollar continues its positive trend in 2019 but it is now testing the top of the ascending trading channel so it could need a break. That would only help the I-fund relative to U.S. stocks.




The Volatility Index was down 5% yesterday but it did close above the 200-day EMA for a second straight day. It also remains in that descending channel which is a form of a bull flag. Due to the size of that flag, a breakout would be a big one, and that would be a shock to stocks. But again, that's not a typical flag formation. It could just continue to trend lower, I don't know, but coming into October we kind of expect volatility to pick up.




AGG (bonds) was up slightly as the chart remains within that rising channel. It has bounced off the 20-day EMA twice in the last week so my guess is that it will test the top of that open gap before the end of the week - near 113.55.




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

Tom Crowley


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