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How will investors react to the undocumented "Trade Deal?"

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Stocks were slightly negative on Monday, but because of the holiday, the action was not all that meaningful, and the prices and returns will be incorporated into Tuesday's share prices. The TSP share prices and returns below are from Friday, which was a wild day with big gains for 90% of the day, but a sharp sell-the-news reaction to the trade meetings in the final minutes of trading took the indices well off their highs, but they still closed with solid gains.

Daily TSP Funds Return

The large negative reversal day on Friday, after a big gap open higher, created an interesting formation on the charts. The S&P 500 saw a breakout above some key resistance including the 50-day EMA, but the very weak close created that negative kangaroo tail reversal and that, along with the big open gap, was a recipe for some kind of backing and filling. The key will be whether the old resistance starts to act as support.

The optimism over the trade talks with China turned into slight skepticism when it turned out that the positive rhetoric had not yet been put in writing yet. That, and the upcoming weekend, sent investors into profit talking mode in those final moments of trading on Friday, and the Dow gave up a large portion of the earlier 500+ point gain it had just moments before the meeting let out. But still, the Dow closed on Friday with a 300+ point gain.

The bond market and banks reopen today and we should get a better idea of what the outcome of this trade meeting really meant to investors. Technically we do have that open gap to deal with, but the key is how much weight investors and traders put in the new support at that old descending resistance line, the 50-day EMA, and the bottom of that open gap which are all hovering in the 2930 - 2950 area.

We basically did the analysis of the S&P 500 (C-fund) chart above. We have a negative kangaroo tail and an open gap hovering over some possible strong support areas, and I'll be watching that 2940 - 2950 area closely for buyers to step up if they are tested again.

The S-fund still has that nasty looking head and shoulders pattern on it, plus it failed at the 50 & 200-day EMAs. the question is whether it cam bounce in the face of these technical roadblocks, or if has been sufficiently beaten down, oversold and due for more relief.

The Dow Transportation Index is almost a replica of the chart above. It doesn't look good but it has been moving sideways since the rally to start the year (not shown) and it could just be a long consolation looking for direction. Unfortunately the H&S has the technicals leaning toward a breakdown, but if that 9700 area can continue to hold, as it has since January, perhaps that will be the floor?

The EFA (I-fund) doesn't look too bad by comparison to some of those U.S. index charts and that's even more impressive given that the dollar has been rallying all year. In the short-term however, that is a heck of an open gap that may just need to get filled before it can make any meaningful forward progress.

The High Yield Corporate Bond Fund was actually up on Monday despite stocks being negative. We got another false breakdown at the 50-day EMA and you can see what it did after recapturing the 50-day EMA in August. If this is rising the stock market does get some wind at its back.

AGG (bonds) was up slightly yesterday but with the bond market closed yesterday, it was likely more speculation on what the bond futures market was doing. The 50-day EMA is getting tested and seemed to find some support initially.

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:

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

Tom Crowley

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The legal stuff: This information is for educational purposes only! This is not advice or a recommendation. We do not give investment advice. Do not act on this data. Do not buy, sell or trade the funds mentioned herein based on this information. We may trade these funds differently than discussed above. We use additional methods and strategies to determine fund positions.

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