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TSP Talk Market Commentary 01/16/2020

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Stocks were up again on Wednesday, but they had to battle back from another midday sell-off triggered by more Trade headlines to do so. Most of the indices were seeing red with about 30 minutes left in the day after a strong positive open, so the bulls were prepared to buy a dip yet again. The Dow closed up 91-points and the small caps of the Russell 2000 led on the upside again, while the Nasdaq struggled to close positive.

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Phase one of the trade deal was signed but there were a few items of the deal that caused some skepticism. They allowed for the U.S. to keep current tariffs in place (as a bargaining chip), but for China to be able to back out of the deal if the U.S. imposed new tariffs. It made the market a little nervous despite the deal getting signed. Get ready for Phase Two headlines.

The Nasdaq has made a new all-time high everyday for six straight days, yet it took a very late rally yesterday to keep it from closing down in 3 of the last 4 trading days. Sounds strange, but it shows us that the daily ranges have been quite narrow with the bulls able to push the index to new highs intraday, but we've also seen some profit taking, especially in some of the bigger leading names like Amazon, Apple, and Nvidia over the last few days.

Does this mean anything? Perhaps, although right now it can only be considered some light profit taking, but if the leaders do start to falter - the names that have been responsible for most of the gains in the major indices - we could see a more broader profit taking wave kick in.

One interesting story currently is the decline in the yield on the 10-year Treasury. Yesterday's close at 1.786% was the lowest close since December 3. It's not something we're hearing much about, but if the Bond market is pushing yields down, are they betting against economic growth?




The longer term chart shows more concern as this large bear flag on the 10-year yield, which failed at the 200-day EMA and descending resistance line last month, is now flirting with a breakdown. To be clear, bond prices and the F-fund move counter to yields so this is actually more bullish for the F-fund. But we're more concerned about what it is saying about the economy and eventually the stock market.




I know bonds can be boring, but the bond market can give clues to what is really going on well before the stock market catches on because mo and pop investors aren't watching it. Nothing alarming yet but certainly worth watching.




The S&P 500 (C-fund) made another new high yesterday, and it keeps on keeping on. This is a fourth month of solid gains and clearly the chart is bullish, but stretched, and like a rubber band, eventually it is going to snap. They always do, but there is not going to be a bell rung at the top so you either have to preempt a drop, or react quickly when it starts. Good luck. Of course the other option is to just buy and hold, that means holding through thick or thin, and that's tough to do.




The DWCPF (S-fund) led on the upside again, although the Russell 2000 did much better the S-fund, and for a second straight day it attempted a breakout above the rising resistance line of that wedge pattern, only to close back below it. It may have had something to do with the very late rally on Wednesday. Mid-caps are not usually the first on the lists of stocks to buy when things are moving fast.




The EFA / I-fund has been in a tight range lately, but trending slightly upward since the sell-off on January 3. The trading channel is fairly wide so it has room to roam on both the up and downside.




The Dow Transportation Index made a new 52-high yesterday but could still be considered at the top of a range rather than breaking out. But with the all-time highs not far overhead, that could be the ultimate goal.




The price of oil continues to struggle since the spike up after the Middle East chaos. It closed just barely below the 200-day EMA but it also broke below the red rising support line so it's getting close to make or break.




The AGG (F-fund / bonds) made a new all-time closing high yesterday and we've been waiting for this breakout for a while. It wasn't a big move as there aren't very many big daily moves in bonds, but new highs are new highs. The question is, why is the AGG at a new highs and yields making lower lows, while the stock market is making all-time highs?




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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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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