TSP Talk Blog

A wild end to another wild week for stocks which started with a big rally on Monday, and ended with a big rally on Friday. But those rallies sandwiched in three days of severe selling creating a mixed week for the stock funds. The Dow gained 572-points on Friday, reversing early losses, and the big gains in the C and I funds did push them into positive territory for the week, while the S-fund lost 2%.

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The jobs report came in much stronger than expected (+379K vs. 200K expected), but as we talked about, a hot number caused bond yields to rally again, and stocks have been very worried about the rate of speed that they have been moving higher. The futures were up sharply just before the opening bell but we saw the bears come in quickly and push the indices down hard again, and it looked as if it was going to be a repeat of the previous three days of a selling. But about two hours into the trading day, the oversold stock indices caught a bid and they were off to the races into the close.

The yield on the 10-year did end the day higher, which you'd expect with a big jobs report, but they came well off their highs and created a negative reversal day. And right now stocks are taking their cue from yields, falling when yields rise, and rallying when yields fall.




Internally the market was positive, but there were some concerns with the number of new lows we are seeing each day. If you recall, Hindenburg Omen warnings are triggered when both the number of new highs, and new lows, are elevated on the NYSE, and that's what we are seeing lately. We did get at least one HO warning last week so despite the strong action on Friday, we do have to proceed with caution.




As of this writing the COVID spending bill was amended in the Senate and is being sent back to the House. It sounds like most of the spending is not related to COVID relief and not earmarked to be spent for a couple of years, so perhaps that had something to do with last week's volatility. The question is, will the market react once it is signed or is it all priced in already?

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The S&P 500 (C-fund) closed significantly above the lows of the day on Friday, holding for a second day at important support and pushing back above the 50-day EMA. It is still in a short-term downtrend and just below the 20-day EMA so today's action could be key, although last Monday's rally turned out to be a big fake-out so maybe I should say Monday and Tuesday's action is key. If we don't see a gap up, there's a good possibility that we could see a pretty good dip back toward the 50-day EMA, or below, since the trading ranges have been so wide lately. Not that it will necessarily close down there, but just some intraday retracing could occur if we don't gap up. Of course if that happens before our IFT deadline it could get you leaning the wrong way, so be careful.




The weekly chart shows the wide trading range the S&P 500 traded in last week. One thing makes me nervous, and that is how elevated above the 50-week average the S&P 500 remains despite the recent selling. You can see that it is pretty common for that 50 week average to get tagged every several months. Are we due again?




The DWCPF (small caps / S-fund) had a huge positive reversal on Friday but it is now running up against tremendous confluence of resistance near about 2130. The futures have not opened yet as I write this and I think we may have two possibilities. We could see a big gap up over that resistance. If not, look for some possible pressure from the bears in that area. They may not be able to hold it, but they should try.




The Dow Transportation Index gained 3% on Friday and closed just 2 points below the February 24th all time high. That's pretty surprising given the recent action. Now it faces the 13,700 area again after the "flat top" pullback last week.




The EFA (I-fund) has been trending lower since its February 16th high, and the recent rally in the dollar hasn't helped. It has been holding at the 50-day EMA, which may be the green light, but it does have some overhead resistance to deal with.




The dollar has had a tremendous run over the last week and a half. Closing above the February high on Friday created a higher low. While it may now be starting a new uptrend, that could turn out to be a big bear flag as we do see some resistance in the longer term chart below.




The BND (bonds / F-fund) was down again with the pop to the upside in yields on Friday, but it could have been worse if those yields didn't come off their highs. It's not the best looking chart, but still looks oversold and could see some short-term relief.




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

Tom Crowley



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