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TSP Talk: Follow-through

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Stocks followed through yesterday on last week's positive reversal. The Dow gained 410-points and the S&P 500 has now added 105-points in the last two trading days. The action kind of smells like a bottom for this pullback, but there is a little more work to be done to get past resistance. And once we get past the first few days of October, the election year seasonality picture gets more murky.

Daily TSP Funds Return
Last Friday I posted a chart that showed the average returns during an election year. Here is a zoomed in version of that chart showing the weakness that has occurred starting in early September of an election year, and that certainly has played out similarly this year. I also circled a small area on that chart that showed a very late September, and very early October positive move, and last Thursday's positive reversal through Friday and Monday's big rally would fit that picture.

That was the good news, and according to the chart, there could be a few more days of upside left. The bad news is, from there - on average - the S&P 500 started a push to the ultimate lows of that channel a week or so into October before bottoming and rallying into the end of the year.

Perhaps this average decline is caused by "October surprises" in the election campaigns, or possibly earnings as that period kicks off the third quarter earnings reporting season, or even just an anomaly caused by the October crash in 2008 being averaged in there.

Whatever it is, the 2020 action has certainly been following that chart eerily closely with July and August being very strong, and September giving back some of those gains. It suggests that October could be a wild one as it closes about where it started the month, getting back a couple of mid-month declines.

The S&P 500 (C-fund) gapped up open and moved back into that bear flag so it looks like the downside target of that bear flag, which was near 3050, is going to have to wait longer, if it is going to get there at all. It's getting less likely. It moved back above the 50-day EMA, and the 20-day EMA with that 1.6% gain. Volume wasn't all that impressive but the share volume advance / decline was about 4 to 1 in favor of advancers. Good, but not a thrust level yet.

The Equal Weighted S&P 500 (same 500 stocks) outperformed yesterday and also filled that open gap near 109. It too is between those two moving averages - the 50 SMA and the 50 EMA.

The DWCPF (S-fund) gained more than 2% on Monday creating a large open gap after jumping above the 50-day EMA. It's a great day and a good sign, but I can't say the downtrend is officially over yet.

The EFA (I-fund) also jumped back above its 50-day EMA and created another open gap. There are now large open gaps above and below this index.

The Dow Transportation Index has been consolidating nicely but has some resistance to deal with before it makes a new high.

The High Yield Corporate Bond Fund was up sharply, as we said it need to do for the stock market to remain positive. There's an open gap above but the 50-day EMA and the old support line are also in the way.

BND (F-fund) was up modestly but remains in its trading range below the 50-day EMA.

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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)

( Real-time)
EFA (I Fund) (delayed)

( Real-time)
BND (F Fund) (delayed)

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