TSP Talk Blog

Stocks rallied ahead of the FOMC meeting and policy statement yesterday, and once that statement was released, we did see some choppiness, but the bulls won out and we saw a close with the indices just off their highs. The Dow gained 160-points and yesterday it was the small caps' turn to lead the way, along with the Transportation Index, both of which gained over 2% on the day. The S&P 500 and Nasdaq both had gains over 1% so it was a broad rally.

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The Fed did not change interest rates yesterday but there were a few changes to their policy statement.

Here's the old paragraph from their prior meeting: "The coronavirus outbreak is causing tremendous human and economic hardship across the United States and around the world. The virus and the measures taken to protect public health have induced sharp declines in, economic activity and a surge in job losses. Weaker demand and significantly lower oil prices are holding down consumer price inflation. Financial conditions have improved, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses."

Which was changed to this in yesterday's statement:

"The coronavirus outbreak is causing tremendous human and economic hardship across the United States and around the world. Following sharp declines, economic activity and employment have picked up somewhat in recent months but remain well below their levels at the beginning of the year. Weaker demand and significantly lower oil prices are holding down consumer price inflation. Overall financial conditions have improved in recent months, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses."

And this sentence was added, and it's not too surprising:

"The path of the economy will depend significantly on the course of the virus."

The market seems to be doing fine and some of the bear flags we were concerned about yesterday can almost be dismissed after the size of the rally yesterday. You'll see what I mean in the charts down below.

Today we get that nasty advanced GDP estimate for the 2nd quarter. The consensus number is a decline of 35%, depression-like figure, which has its own implications, but talk about rear-view mirror data. The S&P 500 is nearly 50% higher and we haven't even seen the GDP yet, which we all know will be disastrous. The market reacted to this possibility in March, and for the last 4 months the market has been basically pricing in the recovery.

Ironically, with big tech companies testifying on Capitol Hill (remotely) yesterday, tech stocks had a big day. After the bell today we get one of the most important earnings days ever. Having three mega stocks, Amazon, Apple, and Google, all reporting on the same day is quite unusual, and given the economic situation, the stock market is locked in on it. If the 3 split good / bad reports the market will have to weigh that, but if they are all good - or all bad, the market could really move one way or the other.

With the indices on the verge of a testing overhead resistance, we have a setup for either a major breakout, or a significant double top pullback from those reports.

If you have an inkling about of how they will come out, you have today until noon ET to make your move, so that you are positioned accordingly on Friday morning when the market opens back up after the reports.

There's too much pending to be too certain about anything going into tomorrow, so I'll make this quick today.

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The S&P 500 (C-fund) is back above that June high and that's 5 days in a row where it flip flopped and closed above / below it. That ascending support line off the late June low broke last Friday and it has since held as resistance, but it is rising at a pretty good rate so it's tough to call it resistance. The mini bear flag that was highlighted yesterday (blue), is probably all but dead now that the S&P closed above 3250.




The DWCPF (S-fund) is also back above its June high, which is a good thing, but obviously it needs to hold for more than a day this time. The gap near 1430 remains open, so that leaves a bit of a mess behind. Had we seen it filled already, we wouldn't have to worry about it, but since it is still there, it leaves the possibility that it could still be filled at any time before new highs are made.




The EFA (I-fund) rallied and another weak day for the dollar helped again. It actually closed above its June high that's a 5-month high.




The Dow Transportation Index broke out of the bull flag we've been watching. It's always encouraging when a chart follows a chart formation and does what we expect it to do. In Tuesday's commentary we said the bull flag indicates that "it wants to test that June high again soon."




BND (bond ETF) bounced from 3 sideways days to close at a new high. The lower support line is rising and holding up well.




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

Tom Crowley


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