TSP Talk Blog

Stocks were mixed on Tuesday with the Dow shedding 67-points while the S&P 500, and particularly the Nasdaq, did well. Small caps and the Transports were down, and bonds rebounded for a 2nd day. The modest gains in the S&P 500 were enough to finally push it to an all-time high, but it kind of limped over that finish line, rather than sprinted. Wal-mart earnings led to a strong open for stocks, and then things got quiet and became a slow summer day of trading.

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I don't want to take away too much from the new highs because clearly the bulls have out battled the bears, but yesterday's trading volume in the S&P 500 was the lightest of the year, by far. The 1.79 billion shares traded yesterday compares to 3.60 billion on February 19th when the prior high was made. Even Monday saw 3.7 billion shares traded according to Yahoo, but StockCharts.com does have a lower number for Monday, so I'm not sure what to believe. This matters because we'd prefer to see breakouts with some participation from the big money.

The NYSE and Nasdaq have different volume totals but both were lighter than average by well over a billion shares. But that wasn't the worst part. You can see that the advance decline numbers were heavily skewed on the negative side with many more declining issues than advancing yesterday. Advancing volume on the NYSE was half of declining, although the Nasdaq did see slightly higher volume in the advancers - but not much, and certainly not what you'd expect to see on day that it is up 81 points, or 0.73%.




The momentum is on the bulls' side and they did finally manage to make a new high. That's all good, but there are some warnings signs that fatigue may be setting in for the short-term. The question is, will the normal warnings signs mean anything in an environment where the Fed is all in with their 0% interest rates and $7 trillion balance sheet?

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The S&P 500 (C-fund) finally made it. It closed above the February, pre-COVID crash, highs. As I mentioned, it wasn't all that exciting as it was the lightest trading volume of the year as far as I can tell, so the money managers weren't exactly jumping onboard. This is historically one of the quieter trading periods of the year for stocks while much of Wall Street is on vacation, but that doesn't mean the indices will be quiet. As a matter of fact, news headlines can push the indices around quite a bit when trading volume dries up.




The DWCPF (S-fund) gave back some of Monday's healthy gains on Tuesday. Will it turn into a Turnaround Tuesday for this index? Perhaps, but there is some decent support in the 1530 - 1550 area.




The Dow Transportation Index was down sharply on Tuesday and may be rolling over, but this recent dip could also be a bull flag if the bears don't put more pressure on soon. Bull flags tend to break to the upside if the flag portion remains stabilized. There is an open gap near 10,600 and if that gets filled it will nullify the bull flag.




The EAFE was down slightly although the weakness in the dollar may help the I-fund. As of this writing the price for Tuesday had not been posted yet, and we know the TSP can make adjustments. But looking at this chart of the dollar, I'd expect the I-fund to get some help. (confirmed)




The weak dollar has been pushing prices higher, and that starts to put inflation concerns out there. The price of Lumber and Copper remain in a strong uptrend, with the weak dollar helping out a lot. I heard yesterday that the quick rise in the price of lumber has added $14,000 to the average price of building a new home. That's how inflation issues start.




BND (Bond ETF / F-fund) bounced for a second straight day after finding support at the 50-day EMA. It's a little too early to say if a low has been put in, or if this is a short-term relief rally. If the economy continues to show the ability to recover, I would think yields could climb out of those historic lows, and that would put more pressure on the bond market and F-fund again. I'm not sure why, but the F-fund has come up short the last two days comparing it to the return of the BND and AGG ETFs.




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

Tom Crowley


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