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TSP Talk: A strong April ends with a wimper

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A big rally in the dollar on Friday put the pressure on stocks and commodities. The Dow lost 186-points or 0.54%, and the broader the index, the steeper the losses were. Bonds rallied as yields pushed lower, and that led to weakness in the financial stocks. And with the dollar's strength pushing oil prices lower, the S-fund, which has a lot of small financial and oil related companies, was down sharply on the day and lagged the TSP funds. For the week, the C-fund was the only positive fund - and of course the G-fund, which is never down.

Daily TSP Funds Return


I believe the rally in the dollar set the tone for weakness on Wall Street on Friday and the question is whether this is a change in trend, or an end of the month misdirection move? We know nothing goes straight up, or straight down, and the dollar was probably due for a relief rally, but it will need to get back above some tough resistance above 24.60 to make any bullish technical headway.




This seasonality chart from our friends at sentimenTrader.com shows us that the dollar does pretty well in May on average, and that could mean pressure on pretty much anything priced in dollars. It doesn't mean everything will go down. It could just hold back something that is up slightly, that might otherwise have rallied big in a weaker dollar environment. It may be difficult to see but they are highlighting the performance of May on the chart. The chart also shows the seasonal weakness in the dollar in April, and that's what we got.


Chart provided courtesy of www.sentimentrader.com


The yield on the 10-year dipped on Friday but it did remain above the short-term rising support line, which could be a key area as we start the new month. If the economy is growing as the data indicates, yields probably shouldn't be breaking down, so if they do, it may be a warning sign for the stock market.




Sell in May and go away (until November) is the mantra we've all heard. Obviously this is not a precise measure of what happens in the market during that six month period every year, but on average most of the stock market's gains have come during the months of November through April. So if anything, I think the market has a bit of a breeze in its face for the next several months, making things a little tougher, but it could still perform well under those circumstances.




The S&P 500 (C-fund) had another failed breakout on Thursday and that was followed by the pullback on Friday. It's not straying too far from that upper resistance line yet, but all year it has tended to come back into that red trading range, each time it tried to sneak out - on the upside or down. Of course the channel is rising so getting outright bearish may be premature, but a test of the middle or lower end of the channel is always possible, while still keeping the bullish channel intact.




The DWCPF (S-fund) pulled back from its resistance areas - not quite making a double top, but perhaps close enough. Double tops are not usually disastrous, but just typical sell responses once some investors get their money back after buying at the peak in February. A test of the red rising trading channel would be typical. Yes, it could get worse than that, but that would be my guess at an initial pullback target - if the 20-day EMA doesn't hold.




The Russell 2000's "mothman" formation is still forming after that failure at the peak of the right wing. If the mirror image of the left wing plays out, we could see a sharp decline at some point to retest the bottom of the wings - or even the legs again. But would that happen during the typically green days of the first week in May?




Here's the seasonality chart for May and while not explosive, there is a lot of green averages on the first 4 or 5 days of May, but today is the 3rd already so...?


Chart provided courtesy of www.sentimentrader.com


The EFA (I-fund) snapped back down into its channel after another failed breakout. We know the story of the dollar on Friday, up 0.82% on the day, and that kind of rally will always weigh heavily on the I-fund.




The Nasdaq is having its own double top issues. It's a new week and a new month so anything could happen today, and I won't rule out a possible breakout, but will the one day dip off the failed breakout be enough to call it a double top pullback? I'd still love to see some, if not all, of those blue open gaps get filled before it takes off again. It seems cleaner and would get them out of our way so we don't have to keep worrying about them.




BND (F-fund) rallied as the bounce off the bottom of the bearish flag followed through for a second day. It is testing the 50-day EMA again after failing to hold above it during April's rally. I don't know how yields would be falling in this economic growth environment, but if bonds do continue to rally, it might be a negative sign for the stock market going forward.




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

Tom Crowley




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S&P500 (C Fund) (delayed)

(Stockcharts.com Real-time)
DWCPF (S Fund) (delayed)

(Stockcharts.com Real-time)
EFA (I Fund) (delayed)

(Stockcharts.com Real-time)
BND (F Fund) (delayed)

(Stockcharts.com Real-time)

Yahoo Finance Realtime TSP Fund Tracking Index Quotes