TSP Talk Blog

The Dow gave up an early morning triple digit gain to close slightly negative (-10) while the S&P 500, Nasdaq, and the I-fund posted gains for the day, but closed well off the highs. The small caps of the Russell 2000 also gave up a nice early gain and closed down, but the S-fund small/mid cap fund held onto a small gain. The Transports were down sharply again and bonds were up.

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The TSP stock funds all posted gains but the day was a little more inauspicious with the indices all closing near their lows of the day and giving back some healthy early gains. However, the market has had a habit of tuning out these short pauses over the last 4 months and resuming the upside rather quickly. It's easy to say what has happened in the past, but not as easy to assume the same pattern will continue into the future.

There's a lot going on right now that the market has ignored, but on the other hand, the "normal" things that the market appreciates like low taxes, deregulation, and low interest rates, are still a major factor in why stocks refuse to go lower. the question is, are these high prices justified when valuation is considered?

I heard on CNBC yesterday that Tesla, which has some great innovative technology, hit a market capitalization of $100 billion making it the 2nd most valuable car company in the world behind Toyota. Seems a little out of whack, but that's what their stock price suggests, and they are not the only company with a price that makes you scratch your head.

Yes, the environment is great for the stock market, but stocks don't go straight up forever. They need to breathe and consolidate once in a while to create support and trends that are sustainable and not looking over a precipice, and at this point we may need to see a little exhale.
The price of oil broke down yesterday, and this is something that I have been watching as a possible red flag. As I have talked about for months, the 90-day / 10-year yield curve inverted in early 2019 suggested that a recession is possible, and even if we don't get a recession, perhaps an economic slowdown would be in the cards, and although it may be too early to say that at this point, a reduced demand for oil can be the canary in the coalmine for the economy.

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The S&P 500 (C-fund) made yet another new intraday high yesterday, but it backed off and closed about flat on the day creating a negative reversal day, but volume wasn't very high and technically it's nothing serious yet, although could be the start of something. I've said that enough times over the last several months that it doesn't even sound true to me anymore, but perhaps that's the contrarian sign that many investors are feeling. Once you give up on something happening, that's about when it will start.




The DWCPF (S-fund) also gave us a negative reversal day despite the gains where the indices closed at the lows of the day after flirting with the recent highs. That red dashed line should not be considered that strong of a support line, but it has now held for two days in a row.




The Dow Transportation Index had another bad day and it is testing the late November peak after failing at the early November peak. There's some rising support coming up from below close to where the 50-day EMA is currently.




The EFA (I-fund) had a good day and that rising support line is coming from below and will be a good test of this recent consolidation. There are some open gaps below, but that's par for the course for this ETF that tracks overseas markets.




The AGG (F-fund / bonds) was up slightly on the day, and given the large rally on Tuesday, I kind of expected this to do a little backing and filling yesterday, as it tends to do. But someone is still buying bonds whether stocks are going up or not. Is the bond market, like oil, trying to flash a warning that the economy may be getting slightly weaker? That is what falling yields may be saying.




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

Tom Crowley



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