TSP Talk Blog

Stocks rallied on Friday after some positive trade news and a better than expected jobs report. The Dow gained 301-points and we saw gains near 1% in the three big indices while the recent laggards, the small caps and Transports, outperformed on the strong economic data. Bonds were down as yields spiked.

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The jobs report beat expectations with 125,000 jobs being created in October. Barron's called the report "Perfect, and a "Game Changer", but these Barron's headlines do have a reputation of being decent contrarian indicators so I would not trade based on that.

The yield on the 10-year Treasury rallied on the jobs report, and that may have been a one-day reaction with the chart having that open gap above, but the 50-day EMA did act as resistance on the way back up, at least for a day.




While the market has been behaving very well recently, there are some signs of the indices getting overbought and possibly in need of a breather, but the bears do have to deal with some strong seasonal conditions for a few more days.

Earnings season is about halfway through now with most of the bellwethers having reported so the catalysts may start to dry up as we go on and the market may once again be a headline driven market with impeachment hearings, trade talks, and Fed rumors.

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The S&P 500 (C-fund) closed at new all-times highs after the better than expected jobs report. It looks to be pushing the extreme end of the recent rising trading channel as well, and after a day like that we might expect either a "FOMO" follow-up rally come Monday morning, or we could see some profit taking - or both by Tuesday. The chart looks fine here but there are some concerns, as there always seems to be. I get more into them in today's TSP Talk Plus report, but one of the keys right now is that we're seeing the smart money getting a lot more defensive recently.




The weekly chart shows an even more significant breakout above the longer-term resistance line, but it could also bring about another couple of weeks of churning consolidation like we saw in both 2018 and earlier this year.




The S-fund had a big day as you might expect in a week with an interest rate cut and a stronger than expected economic report, and it looks like a legitimate breakout above that descending blue resistance line and a higher high over September's high. But small cap investors have been burned over and over in the last year if they didn't take profits after these kinds of rallies. It's been a trader / market timer's market since the top of the early 2019 rally, and even going back early 2018.




The Dow Transportation Index gained 2.3% on Friday, getting back a big chunk of the losses from earlier in the week. The bounce off the 50-day EMA was impressive and a much different result than what we saw at the last test in September. This one looks good and may be a good tell for the rest of the market, but it needs to make a new high above 10,900 rater than just staying within that large range.




The Nasdaq also made a new high, which is great but the index as a whole is doing a lot better than the components within it meaning fewer stocks are holding it up. According to sentimenTrader.com, "Despite a new high in the [Nasdaq] Composite index, fewer than half the securities on that exchange have managed to even climb above their 200-day moving averages."

Over the last 20 years that led to gains in the Nasdaq and S&P 500 just 38% of the time in the following two months. Of course we're heading into two seasonally strong months for stocks so maybe it's a wash? The two other times that happened in October, one was up 2.1% two months later, and one was down 2.7%.




The EFA (I-fund) has been on a tear for the last several weeks, particularly since the dollar topped on October 1st, and on Friday it broke through some short-term resistance, which was already on the rise. This goes to show you that the stock market and economies are not always correlated as Germany's DAX Index, one of the main drivers for the I-fund, is at new 52-week highs while Germany continues to struggle with recessionary conditions.




Bonds / F-fund were down on Friday as yields rallied on the strong jobs report, and that could have been a one-day reaction. Despite the decline in bond, it is trading back above that rising support line and could mean the upward trend may continue, when just a few days ago it looked like bonds were breaking down. There's a gap to fill below, but a test of the recent highs is a possibility here, whether or not that gap does get filled this week.




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: www.tsptalk.com/plus.php

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

Tom Crowley


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