TSP Talk Blog

We are still seeing an interesting game of chasing the hot sectors / stocks, and running from the cold, and much of that is based on what we're seeing in bonds, which were pounded again as yields moved higher. The Dow managed to post a gain yesterday while the Nasdaq imploded and lost 2.5%. The S&P 500 was down sharply (-.77%), but those volatility small caps in our S-fund took a beating (-1.73%), yet the small caps of the Russell 2000 was down just 0.65%.

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As we've talked about recently, the market does seem to have some concern over those rising bond yields and the rally in the price of oil. The 10-year Treasury Yield made a move to 1.37% yesterday, after spending most of last tear under 1%.



Meanwhile the price of oil shook off last week's two day losing streak with a 4% rally yesterday. A lot of that had a lot to do with the dollar continuing its breakdown as the monetary printing presses continue, but we know the economy should start to heat up with millions of people getting vaccinated, and that should pick up the demand for oil and gas.

It's an inflationary environment, or as many are calling it, reflationary since we are just trying to get back to where we were before COVID. We see commodity prices, gasoline, etc., all creeping up, while home prices and rents are exploding, so it could be a problem at some point, and the Fed may then have to do what they said they wouldn't -- raise interest rates, to slow it down. That would likely kill the positive trend in growth stocks.

We can probably forget about the the market rally if that happens. We've seen a few market tantrums from investors over the years when quantitative easing or low rates are taken away.

So far the charts are showing typical pullback action but it wouldn't take much for the charts to start getting ugly so stay nimble and don't get too complacent.

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The S&P 500 (C-fund) opened lower, climbed back to neatly break-even and in the process closed the morning open gap, then it flipped back over and by the close it had fallen to fill a tiny open gap from earlier in the month. There is another open gap down near 3780 and we would need to see the 50-day EMA get tested again for that to happen, and that's not out of the question, if the 20-day EMA (green) doesn't hold here.




The DWCPF (small caps / S-fund) was down sharply but after Friday's monster day, it's not that far off from where it closed on Thursday. The current pattern looks familiar. The question is whether it resolves itself the same way the prior two did.




The Dow Transportation Index was having a huge day but it did reverse off its highs to close with a more moderate 0.88% gain. The low yesterday did hold at the prior highs, as we talked about in yesterday's commentary.




The EFA (I-fund) held up better than the U.S. indices and that was because of the weak dollar, plus the selling in afternoon trading may not have been accounted for in the overseas markets yet.




The dollar has now clearly broken below its head and shoulder pattern. The downside target of the H&S would be in the 24.15 area, but a test of the prior lows would probably occur at that point.




The BND (bonds / F-fund) tumbled again as yields rise so the F-fund took another hit yesterday. The breakdown in the most recent bear flag has a downside target of about 85.8.




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

Tom Crowley



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