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TSP Talk: The dip buyers were back after the one-day decline

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Stocks were tentative for most of the day on Wednesday, but the bulls took charge in late trading, getting back some of Tuesday's losses. The Dow gained 177-points, while the Nasdaq continue to lead on the upside. Small caps (Russell 2000) had a nice reversal day going from a 1% morning loss, to a 0.81% gain by the close, helping the S-fund to a big day.

Daily TSP Funds Return
It was another lighter than normal volume trading day yesterday, and those are the kind of days that can push the indices around. But holiday weeks like this also see a lot of traders staying home, leaving just investors, and that's why there's generally a bullish bias surrounding holidays.

Once earnings season kicks in next week with some banks reporting, we could see volume pick up, and by then the vacationers will likely be back and the volatility could pick up again.

Also, negative headlines could also shake things up in a lightly traded market, but the market has become numb to much of the coronavirus headlines, and it's more about the Fed, earnings, stimulus, and the economic data -- for now. I still think the political headlines, or headlines that could impact the election, will heat up with the summer temperatures, but at this point I'm not certain what Wall Street wants to see. One thing that I know it is anticipating is who Joe Biden picks as his Vice Presidential candidate. Most people understand that this pick could easily become the President if Biden eventually wins.




The S&P 500 (C-fund) bounced back from Tuesday's losses keeping alive the streak of no two-day declines over the last 4 weeks. New highs are a must however, because technically the bulls can't afford to cement in a lower high, if the top of that open gap at 3180 can't be breached. It has another chance today. Otherwise, the formation looks good.




Except...




The DWCPF (S-fund) had a 1% gain yesterday and that 1450 area looks primed for a breakout as the longer-term support keeps rising underneath it. 1350 looks like the drop dead support that would need to hold on any pullbacks.




The EFA had a big day and the technical picture continues to improve as it bounced right back above that 200-day SMA after a one-day dip below it. I don't see a lot wrong here, although double top pull backs are always a good possibility, if it gets back to that June 8 high. The I-fund's price is lagging the EFA because of the late rally in U.S. stocks, but today's price should pad that on.




The falling dollar is also helping the I-fund lead this week.




The VIX closed back below the 200-day EMA yesterday. According to sentimenTrader.com, "Over the past 3 months, the S&P 500 has enjoyed a historic rally. Even so, options traders are still pricing in a relatively high amount of volatility. Using a synthetic VIX back to 1962, we can see that big rallies accompanied by high volatility had a consistent tendency to lead to even-higher prices over the medium- to long-term."




The BND (bond ETF) slipped yesterday as yields moved slightly higher. The trend is up and remains intact. I don't fully understand that, based on what the stock market is doing, but the short-term trend is clear.




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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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