TSP Talk Blog

The stock indices were mixed again on Thursday, but mostly lower and the selling in those MAGA stocks we talked about yesterday, left investors little to choose from, although the Dow somehow managed to close with a 54-point gain, and the indices did close off their lows. Bonds rallied as yields fell to another 5 month closing low. Stocks are struggling, oil fell again, as did lumber which is now at 570 after being 1730 just two months ago, and bitcoin is dramatically off its highs. So, should we be getting worried?

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Investors seem to be getting a little nervous because it seems like the dip buyers, especially in small caps, just haven't jumped back in like their typical Pavlovian response. Large caps are still holding up pretty well for now, so perhaps the small caps are a sign.

Another sign, and this one may not be as subtle, has been the recent weakness in commodities. As I mentioned, we've seen lumber tank in recent months, like nothing we have seen in a long time as it is now 67% off its May high. Then there's copper which is also down sharply (although not nearly as bad as lumber), and more recently the price of oil is showing signs of topping. Why? Should we be more concerned about the pace of the economic recovery with these other signs of a potential slowdown?

This isn't an official forecast but a running GDP estimate from GDPNow. Clearly we've seen forecasts for growth come down in recent weeks.


Source: https://www.atlantafed.org/cqer/research/gdpnow


We know yields just keep falling, which makes sense if the economy is slowing, but we've been having a hard time grasping that since all we've heard about is the economy getting overheated and inflation being the problem. The 10-year is back down to 1.3%. It was just February / March when the stock market was concerned that yields were rising too quickly. That sure has changed.




Yesterday's action saw a lot of internal weakness, which has been the case even when the S&P 500 was making new highs since many of the broader, smaller stock indices have been struggling for weeks. These numbers are not disastrous, but we may be seeing a stealth bear market while the top three indices are still acting as if nothing is wrong.



Almost 200 new 52-week lows on the Nasdaq is a little shocking considering the Nasdaq made a new all time high earlier this week.

Lets add to that the renewed concerns about COVID. We had a baseball game cancelled last night because some players, who had all been vaccinated, tested positive. Is this February 2020 all over again, or is that still in our heads making us paranoid?

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The S&P 500 (C-fund) posted another moderate loss on Thursday and it took a strong afternoon rally to get to that point as it closed about 20-points off the lows. There are a couple of support lines (blue) that may be suggesting that the dip could be over, but if this acts anything like the small caps have lately, there would be more downside to go.




The DWCPF (S-fund) took another hit but it also dodged a bigger loss with a late rally. The neckline of that head and shoulders pattern broke - no matter how you drew it, but the the rally pushed it just back above it. That neckline, or Thursday's lows, may be the line in the sand for small caps and the S-fund. Otherwise, 2100 could be tested next.




The EFA / I-fund was down sharply and it may have been a combination of not getting the afternoon rally - as the overseas market had already closed when that happened, and the push higher in the dollar yesterday always adds some extra pressure to the I-fund. It closed back below the 50-day EMA and the bear flag is clear as day so the bulls have some some work to do here if they want to try to save this one. If this is going to eventually break down, perhaps a fill of that overhead open gap inside the flag could occur first giving anyone who wants to sell an opportunity to sell higher.




The Dow Transportation Index continues to look over that precipice which is the 100-day EMA. It looked like it wanted to reverse higher earlier in the month, but we are seeing rallies being sold instead. This is an economically sensitive index and it is basically telling us the same thing that treasury yields are saying. The question is whether that EMA can hold.




The BND (bonds / F-fund) rallied again after filling in that one gap down near 85.90 which acted as support, but yesterday it filled an overhead gap near 86.35 which could now act as resistance. It's back above the trading channel so I'd have to give the edge to the upside for bonds - unless that fill gap now holds.




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Thanks for reading! Have a great weekend!

Tom Crowley



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