TSP Talk Blog

Stocks tried to battle back from a weak opening yesterday, but the dip buyers dried up into the close and the indices closed near their lows of the day. The Dow lost a modest 0.46% but the broader indices were hit harder. Bonds were flat, the dollar was down, and the VIX was up but remains below any warning levels.

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The catalyst du jour has been the yield on the 10-year, and it fell again yesterday so it was a little surprising to see the pull back in stocks yesterday. Perhaps it was just a little profit taking after the giant rally on Monday.




Once again it was the Nasdaq and small caps living in their own world, moving up and down at much more pronounced levels. They call that high beta. The advancing / declining issues were negative on the NYSE and Nasdaq, but the up / down volume was flat on the NYSE so it wasn't a "sell anything" type of day.




If the rally does fail again here, that could be a troubling sign. Despite some elevated valuations, the market does have a lot of good things going for it right now including seasonality, interest rates, stimulus, a growing economy, etc. so, as I mentioned yesterday, it's new highs or bust for this leg higher off the recent pullbacks.

We get the February Jobs Report on Friday and estimates are looking for a gain of 200,000 jobs, and an unemployment rate of 6.3%.

This could be another case of good news is bad news because a strong report always brings the concern that the Fed or the government will back off on stimulus. The market may be getting a little impatient with the stimulus bill in D.C. as both sides battle it out.

Once all of that is released and behind us, I think 2021 could be a choppy year. But I look at that as a good thing with more opportunities. I tend to miss too many rallies because I don't like to chase markets that seem to move in one direction. Give me the occasional 5% to 10% corrections and rebounds to buy and sell and I tend to do much better.

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The S&P 500 (C-fund) gave back about a third of Monday's gains yesterday, and closing at the lows is bad thing, but it landed on a very interesting juncture - the prior January peak. You can see the lows yesterday tested that interesting area near 3870, which was a breakout level back in early February, but a failed breakout by later in the month. Yesterday's rally popped the S&P back over it, and here it is back down testing it again. This would be a pretty bullish looking bull flag if last week's pullback was so deep.




The DWCPF (small caps / S-fund) flopped over with a big loss after the giant gains on Monday. It nearly filled that open gap created on Monday, which I look at as a good thing, just to get it out of the way. But the bottom of that gap and / or the other support lines you see in the chart really need to hold.




The EFA (I-fund) got some help from a sell off in the dollar, keeping it from the larger losses that the U.S. indices took.




The Dow Transportation Index was down modestly but is still a stone's throw from a new all time high. It's just struggling to stay above that 13,600 area.




The BND (bonds / F-fund) was flat and isn't exactly blasting off from the recent oversold levels. That may be a warning sign and the longer it hangs around this level, the more this could become some kind of a bear flag instead of a "V" bottom.




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

Tom Crowley


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