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TSP Talk: Stimulus trumps jobs loss

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We got the December jobs report before the opening bell on Friday and it came in much lighter than estimates, yet stocks opened higher, and closer higher, with a mid-day swoon in between. As we mentioned last week, it doesn't seem to matter if the news is good or bad, the bull are finding a reason to buy. The Dow ended the day with a gain of 57-points. Small caps were up slightly, and it was the S&P 500 and large tech in the Nasdaq that led on the upside.

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The December Jobs Report came in with a loss of 140K jobs, well off the estimates which were looking for a gain of 50K - 100K jobs. The unemployment rate remained at 6.7%. Despite the unexpected loss in jobs, stocks rallied impressively because, well, that's what they've been doing for months. Regardless of the data.

The weekly chart of the S&P 500 shows how extended the index is based on the long term rising trend, as it pushed right through all of the longer-term resistance lines, although the current rising channel of the the pandemic lows is still intact.

Earnings season will start to kick off this week. Expectations are starting to pick up after the 2020 downgrades, but can these companies show good numbers with the economy still facing the wind in its face because of COVID, lockdowns, and job losses? Will companies be punished on a miss, or is the only thing that matters on Wall Street about printing checks to stimulate the economy?

There is a buzz in D.C. surrounding politics right now but so far the stock market seems to be ignoring it, and only interested in the stimulus potential.

I wish I had something more insightful to impart to you, but all I see is an overly extended market, that may be in need of a rest, continuing to move higher on all news, good, bad, or indifferent.

The S&P 500 (C-fund) remains in a steadily rising trading channel, hitting some short to intermediate-term resistance lines, and just below some others. I was always told that when a chart starts in the bottom left hand corner, and ends in the top tight, you have yourself a bull market. The bulls are certainly on that page and continue to buy every minor dip. You never know how long that can last but the trend traders won't be selling until some of these bullish channels break down. The index is getting close to being 500-points above its 200-day EMA, so it remains quite stretched.

The DWCPF (small caps / S-fund) are even more extended after a temporary breakdown from the narrow rising trading channel, but with the new highs last week, we can draw a new line of support near 1960. The bottom of the old narrow channel could still act as resistance at this point.

The EFA (I-fund) was up sharply on Friday despite a rally in the dollar. It is again testing the top of its rising trading channel.

The dollar ETF, UUP, broke above its descending resistance line late last week and we'll have to see if that is going to be a meaningful break in the trend. I like to give breakouts and breakdowns 3 to 5 days to conform the move.

The Volatility Index has been down for 4 straight days after the spike higher on the first trading day in January. It is now back down testing the rising support line that has held a few times already.

BND (bonds / F-fund) were down again (yields up), after the weak jobs report, which doesn't make a whole lot of sense unless weak data really only means more stimulus. It is down near some support although the October and November lows are also potential downside targets for a test of the lows.

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

Tom Crowley

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