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TSP Talk - Stocks bounce off of moving averages

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Stocks bounced back on Monday after last week's sell-fest, which we have been assuming was a required seasonal pension fund rebalancing as we head into the new quarter. Volume was light again, also suggesting that these large pension funds may have completed, or nearly completed, their selling. The Dow gained 580-points, while the large tech stocks lagged and small caps led the TSP Funds.

Daily TSP Funds Return
A big jump in Boeing's stock (+14%) saw the Dow lead the other indices percentage-wise (+2.3%), while the large tech Nasdaq 100 index had to close strongly just to get above +1%.

A Pending Home Sales report came out yesterday and estimates were looking for a gain of about 18%. The actual number was +44.3% so it was a big beat and added to yesterday's rally. The prior month saw a loss of 22%.

After the bell yesterday the rally continued in the futures market when Micron posted a stronger than expected earnings report, and Lululemon, a popular apparel company, rallied on a $500 million acquisition of Mirror. Also after the bell, the results of the bank stress tests were pretty solid with most banks being able to keep their dividends. Wells Fargo was an exception.

I noticed a slew of negative headlines yesterday, mostly coronavirus related, and why not? The economy has been, and will be, impacted going forward with more Covid cases and shutdowns being announced, but we know where we were, and where we are heading, and it is an improvement, even if it won't be where it was a year ago.

Perhaps not surprisingly with the downbeat headlines, the CEO Economic Outlook report came out showing a 10+ year low in CEO's outlook on the economy. Sounds terrible, right? Well, like many sentiment type indicators, when it hits an extreme, it can be a contrarian indicator.

The last time they were this pessimistic was after the first quarter in 2009.



Chart source: www.businessroundtable.org



As it turned out, that would have been a good time to be very optimistic on the economy, and the stock market.




This is going to be a holiday shortened week and with Friday being the holiday we will get the June jobs report on Thursday July 2, a day earlier than usual. Estimates are looking for a gain of 3.3 to 3.5 million jobs, and an unemployment rate of 13%.




The S&P 500 (C-fund) got an impressive bounce off of the moving averages that we have been focusing on. It is still trending lower in the short term and the broken trading channel is still an issue. That makes the upcoming positive seasonal period that much more important for this rally to continue. It has come a long way since the March lows and this recent consolidation has been its biggest test since. Holding here would be big for the bulls, but the bears have shown some teeth lately.




The DWCPF (S-fund) has actually held up quite well as it never really broke down like the S&P 500 - remaining above both the moving averages and the support lines.




The Dow Transportation Index rallied 2.8% yesterday, also getting a bounce off of its 50-day EMA. It is still in the middle of its trading channel, but it is also below the 200-day EMA after that failed breakout earlier this month.




The EFA (I-fund) rallied but lagged a bit due to the firm dollar and the late positive action in U.S. stocks. It is still the top performing TSP fund in June with one trading day to go.




I mentioned the Nasdaq 100 on Friday saying that the 20-day EMA has held since early April, and after a second brief intraday breakdown in June with yesterday's weak opening, it has now bounced back above it. It has been hanging around the average a little too long for comfort so it may need to avoid another serious down day like we saw a couple of times last week, to keep this trend alive.




The two concerns I had about yesterday was the action in bonds as the yield on the 10-year Treasury fell again and remains below that support line. Below that the High Yield Corporate Bond Fund (HYG) was down fairly sharply on a positive day for stock, which is unusual. It remains below the 200-day EMA, and now the 50-day EMA so these are a couple of warning signs going forward.




The BND (bond ETF / F-fund) rallied again and while it is nearing some overhead resistance, that resistance is rising. Still, I believe the path of least resistance is on the downside here, but if those yields breakdown as we noted above, this could actually breakout to the upside. It would be a surprise unless we get some kind if negative economic news in the coming days, and with the jobs report coming out on Thursday...




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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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BND (F Fund) (delayed)

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