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TSP Talk: A Monday with no gains?

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Stocks opened sharply lower on Monday so it was the first time since November 2nd that we didn't get a gap up open on a Monday. The bulls showed their mettle again however, and the indices bottomed early on in the trading day, and battled back to close with just modest losses. Small caps were an exception as they closed near their lows of the day as they finished out a tremendous month on a negative note. The Dow lost 272-points, and bonds rallied again.

Daily TSP Funds Return

Another round of positive vaccine news, the 4th Monday in a row, and the market seems less and less enthused by the development telling us that the vaccine news may be fully priced in now. The arrows represent the past 4 Mondays and you can see that we still haven't seen the S&P move back above that November 9th high, the day of that first vaccine announcement from Pfizer.

Of course small caps and Nasdaq have usurped their November 9th high and have continued higher so it's a mixed signal.

Internally the market was weak yesterday except for the large cap tech stocks which saw more advancing volume than declining despite the small loss in the Nasdaq. But the NYSE number were pretty bad.

The jobs report for November comes out on Friday and estimates are looking for a gain of 650,000 jobs which, with the massive number of new COVID cases being reported, is sort of surprising. The unemployment rate is looking to hold at 6.9%. Again, quite impressive under these circumstances. The question is, will we see those estimates get hit?

Another question will be how the market reacts. Could another big number jeopardize the chances of a large stimulus package? Would the market rather see a lower number to light a fire under Washington to get a deal done? Or, will a weak report be a negative turning point for the economic recovery that has been fairly strong?

Going forward, there is a December 11th deadline for congress to pass a spending bill and avoid a government shutdown. Plus, I don't know much about it, but the electoral college situation has some sort of deadline on the 14th and with recounts and lawsuits still pending, could that be a date to watch?

This could make for an interesting week or two of trading as we head into December, normally a strong month for stocks, but historically, after a big November (defined as +5% or more) Decembers haven't done all that well.

The S&P 500 (C-fund) was down sharply early on Monday but the bulls fought back and the day ended with just some modest losses. The bears couldn't even fill that small open gap during the morning lows, and the flag formation remains intact. The bulls are still in charge but perhaps the bears were sniffing around yesterday and sensing some exhaustion from the bulls?

The DWCPF Index / S-fund lost 1.09% on the day which is its worst day in a while, but given what this index and chart has done over the last month, a little pullback wouldn't be the worst thing that could happen here.

The EFA / I-fund had a rough day and as parabolic as this chart has been, we knew that all of those open gaps meant there could be a day of reckoning ahead.

The Dow Transportation Index had a bad day, but more concerning than a 0.89% loss after a rally like we've just seen, is the breakdown in the chart (red wedge) which could be a warning sign for the short to intermediate term. That blue line near 12,500 may be the key.

The High Yield Corporate Bond Fund was down slightly on the day, and after initially breaking from that rising wedge formation in early trading, it managed to close back inside it.

BND (Bonds / F-fund) rallied again and that's two breakouts recently, and to me this is a good sign for bonds but a little concerning for stocks. This tells us that the bond market may be expecting weaker economic conditions going forward. I suppose if the stimulus talk starts up again, this could reverse.

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

Tom Crowley

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