TSP Talk Blog

Correction! I have been saying that the FOMC meeting and interest rate decision is on Thursday this week. It is actually on Wednesday!

Stocks opened higher on Monday and we finally saw a new high in the S&P 500. The Dow gained 133-points, the Nasdaq led on the day with a gain of 1%, while the Transportation Index gave back all of its early gains to close flat on the day creating a negative reversal. With the Fed getting ready to cut rates on Wednesday, and a jobs report on Friday, we could see the volatility pick up as the week wears on.

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New highs may have taken many by surprise and that could bring in more money, at least in the short-term. Remember the FOMO investors - fear of missing out? But if we do rally for a couple more days leading up to the FOMC meeting, what happens if the Fed says their job is done?

The futures market still shows a 96% chance of another 0.25% cut on Wednesday, but even if the Fed does cut, all they have to do is say they are done and the market could see a bout of profit taking. Stocks are at new highs, the unemployment rate is below 4%, the economic data has been stabilizing (except for maybe on the manufacturing side), so that's a possibility.

The yield on the 10-year Treasury continues to show that we may have put in a low near 1.4% and now that it is 1.85%, the Fed may take that as a queue to hold off.




All of that is a good sign for the overall economy but the stock may not necessarily like it right away. So while things are improving, there is a reason to be on the lookout for a dip or at least another pause. But as we head into the stronger two months of the year, the bulls won't be far away to buy those dips so it's debatable whether even selling into a post Fed decline would even be worth it. Those short-term moves tend to be tough to negotiate.

Nancy Pelosi announced yesterday that the House of Representatives plans to hold a vote on an impeachment inquiry on Thursday. Interesting. Just another thing we need to consider.

Google reported disappointing earnings after the bell on Monday but after some volatile after hours trading, it actually ended up down just 1.2%, and that was less than the gains it had on Monday during trading hours.

We get the October jobs report this Friday and estimates are looking for a gain of 90,000 jobs, and an unemployment rate of 3.6%.

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The S&P 500 (C-fund) gapped up to new highs on Monday, and for the most part, held onto those gains. At this point the bulls will want to see that blue line hold on any pullback, and ideally filling that open gap near Friday's highs would be better. If it can hold, the thing to consider is the possibility of profit taking after the Fed meeting on Wednesday.




The S-fund had a solid day but it did give back a meaningful portion of the early gains. Technically, it rallied above that rising trading channel, and that could mean some rising support if it can hold. Resistance, once broken, tends to act as support.




As we mentioned yesterday, the Transportation Index may breakout in sympathy if the S&P 500 broke out, and that's what happened, but we also said it has come a long way in October and could probably use a rest, and it did give back those early gains, so I am keeping an eye on this one for possible clues to what the S&P may do.




The EFA (I-fund) closed above the July high for a 4th straight day making it look like this is a real breakout. I hate having that large open gap below that breakout line since we know that is a possible target on any pullback down the road, but of course it would have to fall below those two old resistance lines first.




The High Yield Corporate Bond Fund was not up on Monday and that's a slight concern. It led the S&P by breaking out last week but it didn't follow the S&P to a higher close yesterday. That 87.20 - 87.40 look to be a key pivots point here.




The AGG (bonds / F-fund) broke down out of that bear flag on Monday and it is now below the 50-day EMA and the rising support line. As we mentioned above, it is making yields rise and perhaps the bond market is anticipating the Fed announcing that they are getting done with their rate cuts.




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

Tom Crowley


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