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TSP Talk: Sell the news on earnings, or not?

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Stocks were mixed but mostly flat on Tuesday with the Nasdaq lagging with a modest loss. The Dow was up 3-points and the S&P was down less than 1. Bonds were down after a rally in yields, and that may have been the catalyst for the losses in the Nasdaq as well. We got some big earnings reports after the bell so rear-view mirror analysis on a flat day may be futile.

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Google and Microsoft both reported decent earnings with GOOG up almost 5% or so after hours trading, and MSFT down nearly 4%. The Nasdaq futures didn't move much off their closing losses after hours, so they seem to have cancelled each other out. More big tech names to follow like Amazon, Apple, and Facebook, each which could be market movers.

The Dow Transportation Index had a big day - breaking to another all time high, and being the market leader, it's tough to get too bearish on the broader market, despite all of the concerns I have been voicing lately.

Yields popped yesterday after holding at the 50-day EMA for more than a week. That sent bonds reeling, and may have been the reason for the weakness in the Nasdaq. The dollar was up slightly but continues to slide from the late March high.

Despite the gain in the dollar, it has been falling as we all expected given the government spending and monetary policies from the Fed. That is part of the reason for the buoyancy in stocks since, when the dollar falls, prices tend to go up, and that's the inflationary concern. We've seen it in many commodities, or if you're the shopper in your household, you've seen what has happened to the price of food.

Here's a look at Copper and Lumber, helping push the price of building houses higher, but of course demand is also high there, so that's why they (housing prices) have exploded.

So rising stock prices helps those are holding them in their portfolios, and that helps investors keep up with inflation, but what happens when stocks fall again? Will housing and food prices decline? Not likely. The 2008 housing bubble crash was an anomaly and probably a once in generation event. Their prices could flatten, but I would not anticipate a 50% drop again in our lifetime. I think. :^\ That's means holding onto some of the gains you've accumulated lately may be one of the keys to keeping up with inflation. I'm not saying stocks are about to tank, but do you have a plan if they do?

The 2-day FOMC meeting wraps up today. No changes are expected, and there will be no press conference afterward, but we know any changes to the policy statement could trigger some volatility in the market.

The S&P 500 (C-fund) continues to hang around the all time highs and riding below the rising trading channel's resistance line. There's still nothing technically on this chart that indicates that it should be sold EXCEPT that it does perhaps look too good. Stocks go up, and they go down. They rally, and pullback. They get overbought, and oversold. This chart suggests everything is on the overdone side, but no one has been ringing the bell at the top yet.

The DWCPF (S-fund) continues to climb after lagging the large caps for months. It is now finally flirting with a new high, but has it come too far over the last several weeks to break through? I posted the IWM Russell 2000 ETF chart below the S-fund chart to show what the real small caps world is doing, and it is also nearing some critical resistance near 230.

The EFA (I-fund) was down sharply and fell back below one key resistance line which, for a second time, failed to hold as support once it got above it. It's now back in that red rising channel.

The Transportation Index had a big day, back up to new highs, so the negative reversal days, which tend to precede down days on a chart, continue to mean nothing negative for the Transports. It has remained in a very tight channel since breaking down on the 19th.

BND (F-fund) fell sharply yesterday, falling from that small rising wedge pattern we mentioned yesterday, and it found support at the 20-day EMA, but possibly on a mission to test the bottom of that red bear flag, which could be dangerous.

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

Tom Crowley

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The legal stuff: This information is for educational purposes only! This is not advice or a recommendation. We do not give investment advice. Do not act on this data. Do not buy, sell or trade the funds mentioned herein based on this information. We may trade these funds differently than discussed above. We use additional methods and strategies to determine fund positions.

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SPY (C Fund) (delayed)

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DWCPF (S Fund) (delayed)

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EFA (I Fund) (delayed)

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BND (F Fund) (delayed)

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