TSP Talk Blog

Stocks looked like they had a great day on Thursday, and for the most part they did, but there was pockets of weakness. The big three, Dow, S&P 500, and Nasdaq did just fine with all of them making new highs, but some of the market leaders like the Transportation Index and small caps posted some red numbers. The Dow gained 89-points.

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The indices are getting on the overbought side, which isn't a surprise with this this week's strong rally. The question is, can they keep going as they did in the final quarter of 2019, or will we see a more typical overbought action, particularly since February is not the best month for stocks historically?

The January jobs report comes out this morning (Friday) before the opening bell. Estimates are looking for a gain of 164,000 jobs and an unemployment rate of 3.5%. Obviously any kind of surprise in either direction could shake things up.

The Volatility Index has come down dramatically this week but it is now sitting on top of the 200-day EMA and a rising support line which could keep volatility elevated if they continue to hold. A weak jobs report would likely send this right back up from that support and that would almost certainly mean stocks would be falling. But if the report is solid and the support breaks, it could mean another leg higher for the indices.



There are some positive similarities in the charts to a breakout that we saw in December, but again, this isn't December. The market environment is still very favorable for stocks, but unlike last year's rally in February, the Fed is no longer talking about cutting rates.

Coronavirus deaths are on the rise and that is getting the market's attention, but they are not near what some projections were expecting.

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The S&P 500 (C-fund) made new highs on Thursday right before the jobs report comes out. There was a similar pattern in December that preceded another leg higher. This is February and perhaps we'd be asking too much to see the same outcome here, but it may all depend on the jobs report today. The open gaps back in December never got completely filled. Does that mean the recent two in February won't either?




The DWCPF (S-fund) was down again lagging the large caps, but it may have just been digesting the gains from the big two-day rally on Monday and Tuesday. There is some overhead resistance and large open gap below, but like the S&P chart, a repeat of December's similar formation could mean a breakout.




The small caps Russell 2000 chart, not exactly our S-fund but a big influencer, shows a pattern that could indicate some short-term trouble for small caps. Can the jobs report bail it out?




The EFA (I-fund) was up but so was the dollar and that's putting some addition pressure on the upside so it has been lagging the U.S. indices again this year.




The AGG (bonds / F-fund) bounced off of that rising support line yesterday. Nothing huge, but a clear rebound while yields backed off from resistance.




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Thanks for reading. Have a great weekend!

Tom Crowley


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