TSP Talk Blog

The stock indices were up solidly on Friday as a big rally in Apple pulls them higher. The Dow gained 191-points, and the gains in the Nasdaq and S&P 500 seems to be telling us that things are doing very well. But that may just be on the surface. If we look a little deeper we see that the market is actually doing some consolidating, and even pulling back, but you'd never know it just looking at the three major indices.

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I don't want to sound too bearish because momentum is a strong force in determining direction in the stock market, and trying to turn momentum is like trying to stop and reverse a runaway freight train. But if the momentum doesn't stop soon we could see the indices head toward a break in the tracks, and there may be nothing we can do to stop it if it doesn't slow down, take a pause, and let the extremes ease some before starting a new leg higher.

It seems like investors are afraid to do much selling with the anticipation of some kind of COVID vaccine or therapeutic being announced. Trump announced a news conference for Sunday evening - perhaps COVID related? It could be a catalyst to start the week.

We've talked about this a lot, and so far it has been a lot of noise because the main catalysts of this market continue higher, and so far it hasn't had many any negative impacts at all. But on Friday the Dow gained 190-points when nearly half (14 of 30) of the Dow components were down on the day. Apple was basically most of the day's gain for the Dow.

In the broader indices we see it even more and you can see the S&P 500 (black like) is rising to new highs, while the NYSE advance decline issues has been falling for two weeks.




Again, the three major indices were all impressively higher on Friday, while the Nasdaq saw more than two stocks down for every one that was up, and the NYSE was nearly as negative. Trading A/D volume was not quite 2 - 1 but clearly negative.




According to sentimenTrader.com , these types of divergences don't tend to lead to good things. It's a sign that something is wrong, or at least that stocks may be due for a rest.


Chart provided courtesy of www.sentimentrader.com


Does that means stocks tank today, or this week? No, it's rarely that easy. It could, but it could continue to stretch until it eats at your resolve long enough for you to give up on this theory - or historical tendency. Momentum is strong and perhaps us market timers can be nimble enough to get out at the first sign of danger, but the market will fake us out here and there, and lure us in with good action, and lull us to sleep before pulling the rug out from underneath us.

2020 is not your typical year so I suppose we shouldn't expect typical action. Just be careful.

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The S&P 500 (C-fund) made another new high on Friday and for the week, the C-fund did lead the TSP funds with a 0.77% return. No matter how you draw your trendlines, most of what we see is the S&P rising above any support lines, and that's tough to hate. At this point if we think stocks are peaking or getting too high, it's guessing because there's nothing in the way technically on this chart, or any signs yet that this is going to flip over. But as we said above, the internal information is telling us things may not be as strong as it appears on the chart.




The weekly chart however, does show that the double top is still a potential resistance area. It broke above the old highs intraday, but it closed right on the February high resistance line. A pullback to the top of that trading channel resistance line wouldn't be the worst thing to happen to this chart. Continued upside action doesn't look sustainable without a little consolidation first.




The DWCPF (S-fund) has come off its recent highs and was actually down on Friday despite all of that green that we saw in the three major indices. However, support lines are still holding so watch that 1560 - 1535 area for any possible cracks in support.




The Nasdaq 100 continues to ramp higher, holding at every rising support, with a few false alarms in there just to get us worried. Of course it won't last forever, but we won't get any head's ups when this is about to change. But how long can the U.S. stock market rally based primarily on these stocks?




The dollar broke above some resistance on Friday and closed with a strong 0.48% gain, but it did close near its lows after giving up much of its earlier strength.




The EAFE (I-fund) was down sharply as we might expect with the dollar rallying, but perhaps not when the Dow is up almost 200-points. Again, Apple and a few more of those high flying techs are boosting our indices and that may not always translate into gains for the I-fund. The I-fund was actually down 1% last week.




The Dow Transportation Index had a great run in August and recently it has been consolidating in what looks like another bull flag, which of course tend to beak to the upside, so this looks like it may be ready for another leg higher. This isn't tech stocks, but recently it has been doing almost as well. The problem here is in the 2nd chart below. While the Nasdaq is making new highs almost daily, this one is running into the old highs which could act as resistance.




BND (Bond ETF / F-fund) rallied nicely on Friday, pushing back up to the 20-day EMA. This is a bearish looking flag so I'm not overly optimistic that this bounce is going to continue, but we could get an answer early this week. If this moves up to 89, that would likely negate the bear flag. Otherwise, a move lower toward the 50-day EMA and / or the bottom of the flag would be negative for bonds and the F-fund going forward.




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

Tom Crowley


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