TSP Talk Blog

Stocks were struggling to stay positive for most of the day on Wednesday, but by late afternoon the selling intensified and the indices closed at their lows of the day. The Dow lost 345-points and once again the small caps of our S-fund held up best with just a modest 0.4% loss on the day. The question is whether this is just a typical 2 - 3 day pullback in a strong market, or are we in need of another correction after the enormous rally so far in November?

Daily TSP Funds Return More returns

The selling was blamed on some new restrictions caused by the sharp increase in COVID cases. Many people who don't pay close attention are starting to get hit with the reality that there are new restrictions and closures being put in place in some parts of the country. This is just as we are seeing the Dow making new all time highs this month, and the economic data getting much better. Is it a "here we go again" situation?

Maybe, maybe not. You can see in the charts that the indices may just be getting a little over-extended here as the S&P 500 had moved 400-points above its 200-day EMA, and while we saw a more extreme upside in September, most of these rallies had lost their steam by time it hit this level.




The market does like to fool the most people it can at any given time, so after a couple of down days and a bit of a scare late yesterday, the surprise trade might be that stocks start rallying again. We are seeing some excess bullishness again in many indicators, and that could mean it's time for a dip. I'd like to think we'd get a better opportunity to put any cash we may have on the sidelines back to work, but will the market make it that easy in this clean overbought area and give us that pullback?

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The S&P 500 (C-fund) fell sharply in the final hour of trading yesterday and we finally saw that unsustainable angle of incline break. That doesn't necessarily mean stocks will tumble from here, although they could, but it is one warning sign. At best we'd expect a more moderate trend higher, and even if that happens, the 400-point rally in the last 3-weeks may need some digestion and consolidation first.




The DWCPF (S-fund) was down modestly. This one did not break its sharply rising support line, but the negative reversal day may be hinting that it may be coming soon. A move down to the 20-day EMA and prior peak near 1683 would be a healthy breather, while a pullback down to the 50-day EMA would be rough. However, as I said above, the surprise trade would be for stocks to just continue higher and ignore the obvious.




The Transportation Index broke out above the rising resistance line early yesterday, but by the close we had a failed breakout and a negative reversal candlestick created. Watch for that gap to get filled, and rising wedges can be bearish so that 12,100 area needs to hold.




The EFA (I-fund) has been on fire all month, and the Japanese Nikkei index below the EFA chart shows where much of that strength has been coming from. There's just too many open gaps below on the EFA for this to go much higher without a pullback first, and if last spring's action on the Nikkei repeats itself, it could be headed for a retest of the breakout line, which would surely mean trouble for the I-fund during that time.




BND (F-fund) had another nice day as yields fell after those new COVID restriction were announced. It filled another open gap (blue) and now the only two open gaps (red) in the vicinity are on the downside, although there is also one up by 88.40 from early September.




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

Tom Crowley



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