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TSP Talk: Stocks start the week with a big rally

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Stocks jumped out of the gate on Monday morning with a solid gain in the indices. While there was some sliding in the afternoon taking the them off their highs, the indices did hold onto a good portion of their early gains. The Dow gained 328-points, while the Nasdaq, and particularly the small caps, did very well. Not much news out there, but an overhang of vaccine optimism could be the catalyst for the strength.

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Technically, the S&P 500 and S-fund charts posted large gains, but as you'll see in the charts section down below, they merely moved back to the top of their recent ranges, and the bulls will have some work to do to add onto Monday's gains today.

Bonds were flat and the I-fund was up, but only modestly so the weakness in the dollar didn't give it as much of a boost as I might have expected.

There was another one of those "stealth" gaps opened yesterday on the S&P 500 between Friday's close of 3341 and Monday's low of 3364. They are not as easy to pick up on the chart but three others that I noticed below were both filled. The ones in July and September were filled the following day, and the one from August took a month to fill.

My guess is we'll see 3341 at some point again - possibly an imminent brief test like the ones in July and August, otherwise down the road as another pullback like the one in August. So if the market stumbles out of the gate on Tuesday morning, that may be the downside target, but it could get investors leaning the wrong way if it turns out to be support.

Oil didn't participate in the rally yesterday, despite the decline in the dollar, but copper and lumber did, as did silver and gold, so it was a mixed signal for the commodities. With most of them up it did play more into the bulls' hands, and oil's inability to rally could possibly be excess supply rather than demand issues, but if it is a demand issue, the chart, with the 50 day EMA falling and remaining below the 200-day EMA, is a little troubling.

The High Yield Corporate Bonds, which is a measure of the credit market, also didn't join in on the rally yesterday, so that's a bit of a yellow flag for the day. The market tends to follow the lead on this one, but not every day of course. The trend is still up and it's a not a big concern, but something to watch in case there's a negative divergence.

As the market gets closer to Election Day, expect the political rhetoric to pick up and eventually come to a boil over the next 7-weeks. As most seem to know already, if mail in voting is used excessively, the outcome of the election could be delayed while we wait for those votes to be counted. That won't be a good thing for the market. It reminds us of the 2000 election where we waited months for a winner to be called. The market was in free fall already that year, and the delay didn't help. Sound familiar?

The S&P 500 (C-fund) had a big day but it hit that 20-day EMA and stalled. That also happens to be near the top of the recent trading range so we could have a battle between the 20 and 50 day EMAs to see which will give way first. We've seen two support lines and that 20-day EMA break recently so I'm certainly concerned about that, but holding above the 50-day EMA in a bull market tends to be a good place to find support and buy.

The DWCPF (S-fund) rallied 3% yesterday, a monster gain but it too ran into the top of its range and will have more work to do to proceed any higher. We see the ranges and the traders may have the most fun in the coming days if this stays in the range, but one or the other side of that range will break eventually.

The EFA (I-fund) was up but with the dollar down and big early gains in the U.S. markets while the European markets were still open, I would have expected more from the I-fund.

The Equal Weighted S&P 500 Index had a solid day and it has been holding true to that 50-day EMA for month now, and it looks like it wants to hold again.

The Dow Transportation Index was up modestly but it had not taken a hit like the other indices recently, and is just off its recent highs.

BND (F-fund) was flat after giving up some early gains. I'm not crazy about the formations on the chart but the fact that it has been holding in that 88.30 - 88.60 area and above the 50-day EMA, does give it some credibility.

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

Tom Crowley

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SPY (C Fund) (delayed)

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DWCPF (S Fund) (delayed)

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EFA (I Fund) (delayed)

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BND (F Fund) (delayed)

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