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TSP Talk Market Commentary 02/06/2020

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Stocks rallied again on Wednesday and that's three pretty strong days in a row coming off that mid to late January sell-off. The Dow gained an impressive 483-points leading the way along with the Russell 2000, but that gain in the small caps was a little bit of a tease for those of you in the S-fund. The I-fund was up but it had to deal with another big rally in the dollar. Bonds were down on the day.

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With the Dow, S&P 500, the small caps of the Russell 2000, and even the S&P 400 midcap index all flying high yesterday, I wasn't sure why the S-fund's DWCPF index was lagging so much until James48843 in our forum pointed out that Tesla is the largest holding in that fund. That makes sense since the Nasdaq and S-fund had been leading recently while Tesla was going parabolic, and both lagged yesterday with the big drop in that stock.

Someone on CNBC yesterday predicted that Tesla "could" reach 15,000 within 4 years - best case, and 7,000 in 5 years - base case. If that comes anywhere near fruition, it would likely no longer be a part of the S-fund but instead be put in the S&P 500.

The short-term action looks good and as long as bond yields are rising, the stock market should hold up, but watch for any kind of reversal in yields, which would be a warning. I'm watching a reversal below 1.6% on the 10-year T-note as a possible red flag and 1.75% as possible upside resistance. That may not be far off.

The January jobs report comes out on Friday before the opening bell. Estimates are looking for a gain of 164,000 jobs and an unemployment rate of 3.5%.

The S&P 500 (C-fund) gapped up for a 2nd straight day, improving the chart but those open gaps can be downside targets if there is a pullback. However, as we talked about earlier this week, we've been looking for a possible "gap and go" reaction off the lows, and so far so good. It feels like a green light but at this rate the indices could get overbought very quickly, and if the coronavirus headlines continue to scare investors, it could cause a quick end to the rally.

The DWCPF (S-fund) lagged as we talked about, but the action is still very good. I guess I'll be watching Tesla more closely when trying to gauge the S-fund, since it has become the 2020 version of the dot com phenomenon.

The Dow Transportation Index rallied and moved above more key levels as it took out the 50-day EMA and the descending trading channel yesterday. That's encouraging.

The EFA (I-fund) also made a decent move and improved its chart dramatically, but the strength in the dollar may continue to keep it behind the U.S. indices.

The AGG (bonds / F-fund) pulled back again and it is now testing the support of the new rising trading channel. This looks like a possible make or break area with a move below 113.75 potentially being the start of a test of the old resistance line near 112.85.

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:

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

Tom Crowley

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The legal stuff: This information is for educational purposes only! This is not advice or a recommendation. We do not give investment advice. Do not act on this data. Do not buy, sell or trade the funds mentioned herein based on this information. We may trade these funds differently than discussed above. We use additional methods and strategies to determine fund positions.

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