TSP Talk Blog

Stocks opened sharply lower on Friday but fought back in the afternoon and moved into positive territory in the final 15 minutes of trading. The Dow gained 60-points on the day to end a week that saw 2% to 4% losses in the stock funds. Small caps had a great day while the I-find lagged, and bonds were flat.

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By the end of this week it will be two full months since the lows in March. As we have talked about, and you're probably getting tired of this chart, a two month rally in a bear doesn't necessarily mean the worst is over. It may be, but bear markets don't tend to die that easily, or quickly. This chart from 2008 shows that, and we have had several examples in 2007 -2009, as well as 2000 - 2002.




The Trump administration has been pushing the reopening of the economy hard recently and the price of oil seems to be reacting as if it sees demand for oil rising over the summer, after having more than tripled in price since the lows in April.




That's an inverted head and shoulders pattern on the chart, and while inverted H&S patterns tend to break to the upside and is probably trying to create a bottoming formation, there is a technical outside chance of it coming down to test the middle of the head again. So what this chart does in the coming days / weeks, may say a lot about where oil traders believe the economy is going this summer.


The price of economically sensitive copper has been drifting higher with stock prices since the March lows but like many of the stock index charts, it is flirting with a break down at a critical point. If the oil market believes in an economic recovery then I'd expect copper to bounce here, but a breakdown here would tell us something about economic expectations.




I am writing this on Sunday afternoon, before Fed Chairman Jerome Powell goes on 60 Minutes. Of course any time he has a mic there's a chance he could make some market moving remark. He disappointed investors a bit last week so maybe he will try to provide a more encouraging message, but he may not have a lot of ammunition unless he knows something we don't already know.

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The S&P 500 (C-fund) fell through several layers of resistance last week but the reversal on Thursday and positive follow-through on Friday nudged it back over the 50-day EMA and one of the support lines. It is possible that the S&P makes another attempt at the 200-day EMA - especially on some positive news. (I am writing this on Sunday before Jerome Powell was on 60 Minutes.) But if the bears and the "retest" proponents are wanting any credibility, they seem to have their opportunity here and now.




The DWCPF (S-fund) also broke down last week but the two-day rally to end the week allowed it to close back above the 50-day EMA - although still below the rising trading channel.




The EFA (I-fund) is in some technical trouble having ended the week below some key support and that created what looks like a break down from a head and shoulders pattern. Having that happen below the 50-day EMA doesn't look very good for the I-fund bulls.




The Dow Transportation Index was down sharply on Friday, bucking the trend of the broader market. It has the same issues as the chart above, as they look quite similar. There's a broken head and shoulders pattern here as well, although I didn't draw it in.




The BND / F-fund finally broke out of that bull flag that we've had our eye on, but it didn't close very strongly on Friday as it retraced much of the morning gains to close well off the highs of the day. At this point technical analysis would expect the top of that flag to act as support now, but this is a bond chart and the chart doesn't always give us what we'd expect. If the Fed says anything about negative interest rates on Sunday evening it could keep this breakout alive and push bonds back toward the old highs again.




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

Tom Crowley



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