TSP Talk Blog

Stocks finally took a breather after the recent 5-day pre / post holiday rally, but what looked like a minor dip early on, turned into more of a Turnaround Thursday, and the indices gave back a good chunk of Monday's gains. The Dow lost 397-points and was one of the biggest percentage losers while the Nasdaq held up with a loss less than 1%, but it gave up a near 1% gain from earlier in the day, so it was quite a negative turnaround.

Daily TSP Funds Return More returns

Yesterday was another fairly light, holiday week, trading volume day, and it didn't feel serious, despite how quickly things fell into the close. Sometimes it feels like it, but we know stocks don't go up every day. And sometimes when they fall, they fall hard, and we've seen some of that as well recently as the VIX (volatility index) remains elevated and the swings wide.

Seasonality isn't a primary indicator, but yesterday's decline may not be a surprise to those who have followed this month's 30 year seasonality chart. For some reason July 7th sticks out like a sore thumb in the first half of the month, being one of the few days averaging a loss over the last 30 years. Again, not a primary indicator, but things do improve again on the chart for the next week or two.


Chart provided courtesy of www.sentimentrader.com


The media is back in full force on the coronavirus scare tactics and that makes for an interesting set up. We know stocks have been rallying since the March lows when the virus was just starting to vault to the worst numbers of the pandemic. Now the market is mostly shrugging off the 24/7 headlines and is climbing the wall of worry. There's a void of economic headlines for the next week and perhaps the fear works when there's nothing else to focus on?

While the economy is making good progress since the full shutdown, there are still concerns and setbacks in parts of the country, and that will make earnings season that much more interesting as companies will be addressing their status and forward guidance for the third quarter. And we know the market likes to look forward to do its pricing, and does not care much about the rear-view mirror action.

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The S&P 500 (C-fund) hit a 3+ week high on Monday so yesterday dip wasn't too much to be concerned about yet. Even the rising trading channel remained intact - depending on how thick your crayon is, but this is still in that consolidating rectangle and even a move down to 3000 wouldn't change that. The VIX is near 30 and stocks may just need a little room to breathe.




After filling an open gap on Monday, there are now a couple of large immediate open gaps, one above and one below, that will vie for attention from traders. There are a couple more down below, and they will most likely get filled at some point, but those from near the March lows could take months or even years before they get addressed again..




The DWCPF (S-fund) took a decent hit on Tuesday, but it basically just gave up Monday's gains. It looks like the 1400 is a key support area, and a break above the 1450 area is the bulls' goal to break free from its trading range. A move to the old highs would be about a 5% gain from here. A move to the 50/200 day EMAs would be about a 5% loss.




The EFA (I-fund) was down, compounded by a relief rally in the dollar yesterday. It fell back below its 200-day SMA, but remains above the bullish looking flag.




The BND (bond ETF) continues to rally while bond yields continue to surprisingly sink despite some signs of the economy improving. The bond market doesn't seem to be on board with that theory, however. They seem to be betting on more economic slowdown.




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

Tom Crowley



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