TSP Talk Blog

Stocks rallied on a Trump trade Tweet early on Thursday, then later again on news of some sort of phase 1 deal being made. The Dow ended the day up 221-points or 0.79%, which was about the same for the other big two major indices, although they were not able to close at the morning highs of the day, which was a little surprising given the news. Bonds pulled back sharply Thursday after Wednesday's rally.

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There were some indications midday that this could turn into a failed rally as the indices came well off their highs by noon and the Dow, which was up over 300-points at the morning highs, was down to a double digit gain. Then the Tweet rumor turned into an "agreement on terms" headline that reignited the rally and we saw the Dow, S&P, and Nasdaq all close with gains of around 0.8%. However, the indices did not make it back to the morning highs as the Dow closed 80-points off the morning Tweet high.




We got a two-day decline to start the month, and after a push back toward the highs, another two-day minor dip after the jobs report rally. Then the Fed helps on Wednesday, and yesterday we get this announcement of a trade terms agreement. So is that all we'll get for the downside in December from the bears - a month that has struggled in the first half or so historically? Or do the bears have something up their sleeve, like a sell the news reaction to this new trade announcement?

Maybe this is a green light with the jobs report, the Fed, and the partial trade deal, all with a week left before the traditional Santa Claus rally actually begins. I don't know. Being that the market has rallied for the last 10-weeks, has all of this been mostly priced in already? I mean this is basically the same trade deal they were talking about in October, and that was 2000 Dow points ago. Markets tend to top on good news, and bottom on bad. I've been wrong about it so far so I hope your analysis has been better than mine recently.

President Trump was set to sign the deal as of this writing, and the big question is whether or not the tariffs, which are set to be implemented on the 15, will be delayed or completely lifted by this agreement. That may determine what happens over the next week.

One last things, the UK had their election yesterday and as of this writing the exit polls are indicating that Boris Johnson and his Conservative party will add dozens of seats in Parliament, and that of course increases the chances of a full Brexit. Will that impact the market?

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The S&P 500 (C-fund) rallied to new highs on the phase 1 trade agreement, and that new high gives us another technical support line off the October lows. So, a rising trading channel is back intact, but it is wider and that sets up some more possible wider swings. There are open gaps just below within that channel, although one is technically below it.




The weekly chart shows the breakout in October from the slowly ascending base we have seen formed since the trade war began in January of 2018. The red arrow shows the test of the breakout area, which held, and that was certainly a bullish move. There is some old support that broke and is now possible upside resistance, although that resistance line is rising too.




The DWCPF (S-fund) is getting closer but it is still 20+ points below its all-time high, and that area could turn into a double top, although as we get later in December the bears may run out of time to do anything until 2020.




The Dow Transportation Index was up a solid 1% although it did close well off the highs and below some descending resistance (blue). The red descending trading channel was broken on the upside.




The EFA / I-fund held onto some decent gains after the dollar gave back a large early gain by the close. This pushed the EFA into new high territory.




The AGG (F-fund / bonds) plummeted on the trade news yesterday, but we have been watching the 50-day EMA and the top of the larger bull flag (red) as possible support for any pullback, and so far that has held as the AGG climbed back off the lows to close above the 50-day EMA. Also, is that another good sized bull flag forming in blue?




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Thanks for reading. Have a great weekend!

Tom Crowley


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