TSP Talk Blog

The New Year greeted Wall Street with more of the same sort of action that we've seen over the last 3 month. That's not unusual during the first few days of a new year, with seasonality and the Santa Claus rally still in effect, plus new inflows from pensions, etc., but it doesn't last forever. The Dow gained 330-points, or 1.2% which is well above the seasonal average, as it was on the Nasdaq, but the S&P 500 and the Russell 2000 were more subdued at +0.84% and -0.10% respectively. Interesting day.

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Stocks opened higher than nearly gave back all of the early gains, and it wasn't until those last couple of hours that the buying hit a frenzy with what felt like FOMO (fear of missing out) panic buying.

I looked back at a couple of things to see if there is any precedence to what's happening now. Here are a few things that stuck out to me.

The start of the prior decade saw a big rally on the first day of trading (2010), which continued for several days before it fell apart pretty hard a couple of weeks later and January ended with a good sized loss. Interestingly, stocks had a great year in 2010 when it was all said and done.




On the other hand, stocks tanked to start the 2000 decade, bounced back after a few days, but failed again. They ended the year with bad losses in 2000.




Looking at these charts may be telling us that the rally may have more time left. This was the final months of 2017 and into 2018 where the S&P went parabolic before falling apart in early February, giving back those January gains. The smaller chart is the recent action.




If we squeeze it a little and compare the current rally to the mid-November 2017 rally to the end of the year, we may be closer to the peak. That's kind of a stretch since the 2017 rally did start earlier than that.




If we compare the two perhaps there is more room to run in the S&P 500, but the final result may be similar where it would take a massive plunge to bring things back to reality. If you're going to chase at these levels, you better stay nimble and not fall asleep.

If the market is looking for the match that is going to ignite the next pullback, it may have been lit late yesterday when an Iranian commander, and his deputy commander, were killed in an airstrike by the U.S. military. The overnight price of oil spiked, and the stocks futures were down sharply. We'll have to see how this plays out and how the market reacts. Lately it has snapped back quickly after every hiccup. The question is whether that will happen gain, or is this going to pack more of a punch for stocks?


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The S&P 500 (C-fund) gapped up, came back to nearly fill the morning gap, then took off in afternoon trading up to new highs. It is now about to test a double dose of resistance, but those resistance lines are still rising. There is still an open gap down near 3205.




The DWCPF (S-fund) didn't make a new high after getting off to a slow start on Thursday. Watch 1525 for possible resistance, which is that middle trend line that may not be as firm as the outer lines.




The EFA (I-fund) gapped up and held on despite a big spike up in the dollar on Thursday. I'm not sure what to make of this, and I have a feeling this one could give some back today, but you never know in these first few days of the new year.




The dollar has bounced off the 200-day EMA after Tuesday's positive reversal day. Now that old broken support line may be a challenge on the way back up, although there is a large open gap above that surely wants to get filled.




The AGG (F-fund / bonds) rallied strongly , as far as bond rallies go, although they did close off their highs and gave us a rather neutral spinning top type of candlestick formation. There is some resistance overhead near yesterday's high, and the support remains at the top of that red bull flag - where it is crossing the 50-day EMA.




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

Tom Crowley


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