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Another trade rally, and no concern over DC turmoil

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Stocks up, bonds down. That's been the theme since early October and on Friday we saw more of the same with the late spike higher feeling a little like a capitulation from the bears, giving up on the idea of a pullback, or having their short position (bets against stocks) getting stopped out because of the breakout. Either way that kind of action comes closer to the frothy part of rally and sets up good profit taking opportunities for those who have been smart enough to hang in this long. The Dow jumped 223-points, with solid 3/4 of a percent gains in many of the big indices.

Daily TSP Funds Return

We had a nice sideways / slightly upward consolidation for about a week or two before Friday's pop higher. It seemed to be related to some positive comments from Larry Kudlow on the trade negotiations. So while we have been getting these knee-jerk reactions to trade headlines for nearly two years now, it is obviously still in play, and possibly the largest market catalyst going forward with earnings season winding down and rate cuts possibly done. A deal is getting closer but it is now apparently going to be rolled out in phases, and how much of this first phase has now been priced in?

The impeachment hearings will continue this week, and while it doesn't seem to be a concern for Wall Street at this time, there could be another test for the market when the Inspector General releases the FISA abuse report, which sounds like could be imminent. So expect even more sensational headlines out of D.C., but will it matter for stocks?

Seasonality plays a role this time of year as the market does have a positive bias through the end of the year and so far it has worked, but there are still a couple of hiccup areas in mid-November and early to mid-December where, if we are going to get a pullback, history suggests would be the time it could happen - although seasonality is not a primary indicator in most cases.

The S&P 500 (C-fund) gapped open on Friday, breaking above the consolidation between 3080 and 3100. It is now back testing the top of that rising trading channel and the question is how long can this channel remain intact? The index has been up 4 days in a row, and 7 of the last 8, but the gains were coming in small advances until Friday's jump of 0.77%.

On Friday I showed how stretched the daily S&P 500 chart is above its 200-day moving average. This weekly chart shows how far it is above the 200-week MA, and this goes back to the start of this bull market after the 2009 low. The two peaks in 2018 did exceed the current distance above the average, but both of those preceded strong, quick pullbacks.

The S-fund broke above what we thought could be a bull flag, and it sure acted like one, so the flat top formation I was concerned about, is no longer an issue - unless this turns into a fake out this week.

The Dow Transportation Index was up early on Friday but faded late after filling the open gap from Wednesday. The weak close created a negative reversal on the chart and the gap remained open below 10,800 so that is still a possible downside draw for the Transports.

The EFA (I-fund) had a solid day on Friday and still appears to be within a bull flag. There's a lot going on here including it trading close to the top of a couple of large rising channels (blue), so it will be interesting to see if a bull flag breakout here would go anywhere.

The AGG (Bonds / F-fund) filled an open gap on Thursday, tried to fill another on Friday, and still has another gap on each side of the current level so it would not be too surprising to see some volatility in bonds this week, but the overall formation looks like a bull flag (red) but whether it can breakout on this recent move off the bottom of the flag remains to be seen. You never know how large a flag can get but this one is already over a month old.

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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SPY (C Fund) (delayed)

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DWCPF (S Fund) (delayed)

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EFA (I Fund) (delayed)

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AGG (F Fund) (delayed)

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