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TSP Talk Market Commentary 12/23/19

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Stocks had another very solid day on Friday capping another good week for the stock market. It was a very high volume trading day because it was an options expiration day. There was some selling into the close and the Dow saw a solid triple digit gain turn into a 78-point advantage by the close, but the broader indices all performed quite well as the seasonality charts suggested they might this time of year.

Daily TSP Funds Return

I want to be bullish. I really do. It feels good when stocks are going up and you're making money nearly every day, but you can also start to think there's no reason for them to come down and the bullishness compounds with every rally. And now, by nearly every measure we use, investors are at excessively bullish levels. At these current extreme levels, it tends to be more short-term bearish for stocks although still on the bulls' side is the fact that we're heading right into the normal Santa Claus rally period. However, over the last 3 years, we actually saw the market dip near Christmas week, so it's not quite a cut and dried bullish scenario to end the year.

Other than seasonality, another case for the bulls is the momentum which always seems to run in one direction much longer than we think, or indicators show, are possible. And just as the market sucks in some straggling skeptical bears to the bullish side, is about when it becomes more prone to a turn, and sometimes in turns in a hurry, like we saw in early 2018.




What would trigger such a thing? You never know. No one was thinking a trade headline in late January of 2018 would put the breaks that unstoppable rally, and to the unsuspecting, the S&P 500 took back 3-months of gains in a matter of days. The good news was, for those who were patient, you got some great trading opportunities over the next several months. The buy and holders, who always do well when stocks go straight up, took the full brunt of that volatility.

The 2020 recession discussions are getting fewer and far between, and the data may be supporting that, but I still have that yield curve inversion stored in the back of my mind which tells me that recessions tend to follow within a year or so of an inversion. It doesn't just tend to tell us that, a recession followed the prior 7 yield curve inversions going back to the 1970's. Is it different this time? Maybe, but why? Historically low interest rates may be the answer there, but that may be another problem we'll be dealing with further down the road.

So while the great action in the market is lulling the bulls into a state of complacency, and they are enjoying every minute of it, I believe the folks paying attention and who can be nimble, could be spared a possible rough patch that may be inevitable in the coming year.

I believe President Trump is trying to do the right thing for the stock market since he uses it as a gauge to keep score for his presidency, but he also seems to recognize when the market is at a point where it is a good time to spring some tough love news on us, like the initial tariffs on China announced near that infamous market peak in late January / early February of 2018 that we just mentioned.

I don't know when this current rally will peak. I do know that it eventually will. But enough bah humbug. The charts do look fine depending on your time frame, and there's some solid support scattered on the S&P 500 between 2800 and 3100, so that does leave room for a decline of about 5% - 15%.

In the grand scheme of things, we're probably a lot closer to the end of the bull market than the beginning, but there are opportunities not matter what kind of market we're in.


Click chart for full image




The S&P 500 (C-fund) gapped up again on Friday keeping the relentless rally going further. That could be an "exhaustion" gap, which can turn into short-term peaks, but given the time of year it is, that may not be the case this time. But in recent years we've actually seen pullbacks during Christmas weeks so it's not out of the question.




The DWCPF (S-fund) remains in that rising red trading channel and Friday's move pushed it above another level of resistance.




The Russell 2000 is still a few points away from its all time high and that may turn out to be the target for this move higher for small caps.




The EFA / I-fund was up on Friday and that was in spite of the dollar's big rally on Friday.




The dollar continued higher on Friday and exploded through its 50-day EMA. This recent 5-day rally is why the I-fund lagged the C and S funds by more than 1% last week.




The yield on the 10-year Treasury Note was up slightly on Friday and the charts show there is a little more wiggle room above, but after that there's a ton of resistance near 2.0% which may benefit the F-fund if it holds.




The AGG (F-fund / bonds) has been stagnant the last few days and has come to rely on that 50-day EMA for support. It remains in the middle of that bull flag, which tend to break to the upside, but there's always a chance that it could test the bottom of the flag before it does attempt a breakout. That 2% yield above holding or not may be the clue.




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


Posted daily at www.tsptalk.com/comments.php

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S&P500 (C Fund) (delayed)

(Stockcharts.com Real-time)
DWCPF (S Fund) (delayed)

(Stockcharts.com Real-time)
EFA (I Fund) (delayed)

(Stockcharts.com Real-time)
BND (F Fund) (delayed)

(Stockcharts.com Real-time)

Yahoo Finance Realtime TSP Fund Tracking Index Quotes