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TSP Talk: Stocks remain buoyant while waiting for stimulus

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It was another choppy day and the indices were mostly red, or close to it, in afternoon trading before another final hour rally, which has been the theme in recent days. By the close the Dow was up 164-points, and the gains were fairly broad with most indices finishing the day with modest gains, although some of the en fuego FAANG stocks cooled off a bit.

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The dollar took another beating, and the drop from a midday rally seemed to trigger the positive reversal in stocks, as well as in many commodities. The declining dollar sounds like bad news but anything trading in dollars tends to move up in price when it does fall. Not that the value of the things you buy in dollars is any higher - just the number of dollars it takes to buy it increases, if that makes sense. In the case of the S&P 500 and Nasdaq we saw a run from the lows of the day to a close at he highs of the day in that final 90 minutes of trading while the dollar reversed lower after failing at resistance.

Anticipation of some kind of fiscal deal out of Washington is helping keep the market buoyant, no matter what they agree on. So despite the weaker seasonality we do have a market that is looking forward to some kind of economic boost from the government, and that may be keeping the bears at bay for a little while.

Disney posted a disappointing earnings report and the stock, a Dow component, was down initially in after hours trading, but it started to rebound on their new streaming service numbers and products. Also a possible catalyst today will be that Novavax reported after the bell yesterday that their early coronavirus trial did generate an immune response, but the stock was down sharply for some reason - I haven't heard the details. The market is certainly paying attention to that.

I see some warnings signs out there for sure, but there are other good reasons to hang onto stocks so it's a matter of individual preference and our tolerance for risk as the indices seem to defy gravity despite the warnings. The market is looking out a lot further than next month and trying to decide where the economy will be in 2021 rather than what some short-term (and some longer-term) indicators are telling us.

The S&P 500 (C-fund) is still trading in slightly lower, summertime trading volumes, and that is making things a little choppy. It made another higher high yesterday, and another 6-month closing high. There's a small open gap down near 3272, or 34 points (1%) below the current level.

The DWCPF (S-fund) also made a higher high, and while the breakout is generally a good thing, there is some resistance at yesterday's highs, and it's possible that it is the top of a large rising wedge pattern, which can be bearish as they tend to break to the downside eventually. Without that spike and negative reversal on July 23 (the high in July) it would be a more classic breakout to the upside.

The Dow Transportation Index poked its head above the June high yesterday, but settled just below it, so it is a potential double top. On the other hand, the bull flag breakout does have a higher price target and a strong support line (blue) is rising below it. It did close back above that psychological 10,000 level.

The benefit of the weakening dollar is that the price of what trades in dollars goes up. So we are seeing some inflation. In the case of commodities, oil is back above its 200-day EMA and potentially primed for a breakout above that long two-month consolidation. That won't be great news for consumers, but it is potentially a good sign for the economy. Below that we see some very bullish action and formations in the charts of other economically sensitive commodities, copper and lumber.

BND (bond ETF / F-fund) -- was up again. As far as whether to be in the G fund r the F-fund if not in stocks, the F-fund is winning out big time. But stocks are still out performing bonds.

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

Tom Crowley

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