TSP Talk Blog

Stocks were struggling on Friday, holding near the flat line for much of the day until a late selling spurt was triggered in the final hour of the day. By the close the Dow lost 220-points, and the losses mostly consistent across many sectors, although once again the small caps S-fund managed to lead with a small gain on the day. The week ended with a modest loss for the S&P 500, while smalls caps shined gaining 3.5% on the week, and the I-fund added 1.3%.

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The selling on Friday was late enough to help the I-fund hold onto some gains, but that will likely be adjusted down some in today's pricing. Bonds were up sharply as the economic outlook may be getting murky with the COVID cases rising so quickly. We've been seeing nearly 200K new cases each day according to covidtracking.com. Of course testing has ramped up as well as we now see close to 2 million tests being done each day.

This chart is old, last updated in 2011, but it encompasses over 60 years of data. It shows that historically stocks do well in the lighter volume trading days before and after Thanksgiving Day, and struggles in the week after, which is interesting since early December has a decent record, and this year there is only one trading day left in November after the holiday weekend.


Chart provided courtesy of www.sentimentrader.com


Here we are almost three weeks after the election, and although the media has made their calls, we still don't have an official winner declared by the GSA. Yet the stock market still doesn't seem to care. The more important political headline for the market might be the Senate races in Georgia, and their runoff races will not held be until January 5th, so we have some waiting to do. The winners of those races will determine who controls the Senate, and the outcome could set the tone for tax rates going forward, stimulus, and any other issue that could impact the economy and Wall Street.

There's definitely evidence that the market is overbought in the short to intermediate-term and perhaps due for a pause, but the upside momentum has been relentless this month, and the bears have their work cut out for them if they want to slow down that freight train. I suppose a continued hyper jump in COVID cases could do that, but that will also spur on more stimulus talk, so the market will have to weigh those as it looks forward.

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The S&P 500 (C-fund) sold off late on Friday to end the week with a modest loss and that action could be showing signs of a topping formation, although I am not ruing out that the red bullish looking flag could just be a consolidation before the next leg higher. Those two horizontal lines may be the key as one is overhead resistance and as of now showing a failed breakout, and the lower one is trying to hold as support. 3550 looks to be the key level of support heading into the new week.




The weekly chart shows another failed breakout as it closed below that long term rising support line (red) after a couple of attempts to break above it. 3400 could be a level of support if we do see a pullback, and actually the top of the blue trading channel, which is near the 50-week average, could be a troubling pullback target, but may be a perfect place to be a buyer if we do see that kind of a correction.




The DWCPF (S-fund) is having a great November with 5 trading days left in the month, but you can see that the chart is getting a little extended as it reaches above the upper end of the rising trading channel (red dashed). There is some rising support (blue) which seems unsustainable, but the top of the channel near 1750 could possibly act as support on any pullback.




The EFA (I-fund) is also having a monster month, thanks to a falling dollar. As you can see in the lower chart, the dollar may be trying to curl back up and form a double bottom, and that could be trouble for this EFA chart which is riddled with open gaps below.




The Transportation Index is getting squeezed between one resistance line and a rising support line. There is a small open gap below and the trouble with that one getting filled is that it would have to break below support to do so. The 12,600 high and negative reversal last Wednesday does have a "toppy" look to it, but we saw something similar on the 9th that was just a temporary peak.




BND (F-fund) rallied again and the COVID cases rising is pulling bond yields down, and sending bond prices higher. It broke right through that blue descending resistance line, and may have its sights on that large open gap near 88.80.




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

Tom Crowley



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