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TSP Talk: Fed keeps the bulls happy

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The Economic Symposium helped keep trading emotions highs, and while you can't always trust the moves in these circumstances, the market has been relentless for long enough that we shouldn't surprised that investors took it as another reason to buy. The Dow gained 243-points, getting back Thursday's near 200-point loss, as did most of the other indices. Small caps led and had a great week, showing decent life after lagging for months. Bonds were up sharply - yields down, the dollar was down sharply helping commodities rise in price.

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Daily TSP Funds Return


The internal numbers continue to improve and so for weeks, if not months, the negative divergences we had been seeing in the breadth indicators has done little to nothing as far as impeding the direction of stocks. On the contrary we've seen new highs in the S&P 500 almost daily.




For some time the S&P 500 was making new highs while some of the less prominent companies of the S&P had lagged. We saw that in the Equal Weighted S&P 500 ETF but more recently, while smaller companies started to catch up, the equal Weighted S&P 500 is also making new highs. So despite all of the concerns over the economy, COVID, geopolitical events, severe weather, debt ceilings, etc., the market has continued to thrive.




The Yield on the 10-year Treasury fell sharply and here it is back below the 50 and 200 day averages again, as the dance above and below those averages continues. If the economy is really in good shape, I would expect this to start to steadily move higher. Since it isn't, or hasn't yet, we may have to assume there is something wrong, but perhaps the market is once again looking for a bail out. If it's not the Federal Reserve, then the trillions, many trillions, in spending bills that are being negotiated in D.C. certainly won't hurt stocks.




Of course if multiple trillions are going to be spent we can expect the dollar to weaken, but for some reason over the last two months, the dollar has been gliding higher. Friday's sharp decline pushed it down to a series of support levels in that 24.8 - 24.9 area and whether that breaks down or not may determine whether the stocks market pauses or keep moving higher.




For some reason August 30th has a poor record over the last 30 years, and the start of September doesn't have the typical bullish bias that the start of many months have. However, this year's market seems to be able to ignore all of the normal tendencies.


Chart provided courtesy of www.sentimentrader.com


I can feel myself capitulating - getting a lot more bullish, which I know is more likely a warning sign for stocks than a bullish sign. You start to get that feeling that stocks will never come down - and that's when they most likely will. My instincts aren't that good, and since I know that, I use it more of a contrarian indicator to tell myself not to get too aggressive despite practically giving up on the idea that stocks will give us a real pullback / correction. I am part of the dumb money, but the key is to know that. If I get very bullish, or very bearish, I know to seriously question that feeling, rather than go with it.




The S&P 500 (C-fund) didn't take long to come back from Thursday's sell off to make another new high. If not every day, then basically every week we've seen new highs this summer. It is currently touching the overhead resistance and there is an open gap below 4450 so the bears, if they have anything left in them, may try to make their move with that set up to start the new week, particularly with seasonality being an issue for the bulls this time of year.




The DWCPF (S-fund) had a giant day on Friday and it broke through some key resistance although it is now up against the late June highs and as range bound as this has been, it wouldn't be a surprise to see this pull back again. It does have 6+ months of consolidation on its side, so if it does break out, it could propel an exciting rally for small caps, which have been lagging all year.




The EFA (EAFE Index / I-fund) had a good day and a big decline in the dollar sure helped. Open gaps above and below remain eventual targets.




The Dow Transportation Index didn't want to be left behind. This has been lagging and in a downtrend for months, and while it hasn't made any definitive move yet, it seems to be trying to stabilize and possibly carving out a bottoming formation. Either that or the bear flag breakdown and the downside resumes. Whichever gets taken out first, 15,200 or 14,400, may give us that answer.




The BND (bonds / F-fund) was up sharply so that area near 86.15 seems to be solid support. But there is also resistance neat 86.60.




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

Tom Crowley




Posted daily at www.tsptalk.com/comments.php

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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