TSP Talk Blog

Another big day for stocks on Friday sending many of the indices to new all time highs again. The Dow gained 162-points while the S&P 500 comes into the new week on a 7 day winning streak, which is actually the second 7-day winning streak since July 31st, so August has been a good month for stocks, and the bulls will hate to see it go.

Daily TSP Funds Return More returns

The indices are getting quite extended and probably due for some kind of a pullback, but the market may not make it easy for us to guess when that will happen. The trend and momentum remain on the bulls' side, but as we head into September the election campaigns will start kicking more into gear and history suggests there could be some rumbling in the stock market between now and election day.

As we head into September, the worst month of the year on average for the stocks market, we have to consider that August was the 2nd worst month of the year historically (tied with February) and we saw what it did as the S&P 500 is up 7.4% with one day to go.


Chart provided courtesy of www.sentimentrader.com


Combine that historical weakness with this chart and maybe we have some trouble coming in September? Ah, but read on. It may not be as bad as it appears.

This chart from Morgan Stanley shows that the average return during the 3 months leading up to the election is a nearly 5% loss since 1990. With the S&P 500 already up over 7% in August, we are either having a very anomalous year, and COVID has certainly made that so, or the next two months could get very ugly if we're going to see anything close to that average.




BUT, (big but) since 1990 (and not including 1996 as it says in the small print), that were only 6 election years so it is a very small sample size, and the 2008 financial crisis fall is included in that, which likely accounts for most of that negative average.

Transition: This chart may be interesting, but probably doesn't mean all that much because of 2008.

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The S&P 500 (C-fund) continues to climb, and depending how one draws their resistance lines, it is near the top of the trading channel. Since that trading channel is moving higher at a steep angle, that resistance can hold while stocks prices continue to move higher. At some point we'll see a pullback to at last test the lower end of the channel and someday those opens gaps will get filled, but right now the bulls are having none of it.




The weekly chart blasted through yet another level of resistance, pushing the index into even more extreme territory. The open gap created last week above 3400 remained open is quite rare on a weekly chart. You can see the circled areas which represent breaks above normal resistance / support levels, and they tend to lead to a correction or snap back rally, but not always right away.




The DWCPF (S-fund) had a very solid day on Friday, capping a good week, although those smalls caps continue to lag the large cap indices.




The weekly chart of the DWCPF (S-fund) shows that the small caps may have more room to run if they are going to catch up to those large caps. It made a new high above February's highs last week, so it passed that line of resistance, although there is another above 1600.




The EFA (I-fund) rallied but lagged a bit with the late surge in U.S. stocks. It remains above that old blue resistance line, but below that recent highs represented by that red line. The dollar has been behaving but so far no breakout here. With the dollar falling near the recent lows on Friday, the I-fund may get a positive adjustment today from the TSP.




The dollar has given back most of the gains it got from the relief rally, and it is now flirting with another breakdown.




The High Yield Corporate Bond Fund ETF was up slightly but remains below the prior highs where it appears to be consolidating, similar to what it did in July prior to that breakout. The double tops haven't been producing pullbacks, but rather just delayed the breakouts.




The Yield on the 10-year Treasury had a big weak, sending BND (F-fund) and bond prices lower. This was due to the Fed's take on inflation, which they will now let grow passed their concern levels, if necessary, to allow the economy to grow. Short-term, bonds may see a relief rally, but this new policy is not beneficial to bonds and the F-fund going forward.




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

Tom Crowley


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