TSP Talk Blog

Stocks bounced back for a day after the recent pullback. Some key support held on the S&P 500 so it looks like just another quick dip - bounce - and go situation, but as we've been talking about, we are hitting the wall next week as far as seasonality goes. The Dow gained 237-points, and many of the other indices gained close to 1% on the day, but maybe more important was that the bears didn't sell the rally this time. Bonds and the dollar were down, as was gold, while oil rallied big.

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The internal breadth of the NYSE and Nasdaq was quite positive, but with early selling in the Nasdaq, we did see 111 new 52-week lows made on that index.

The yield on the 10-year Treasury was up (bond prices down) but it stalled at the moving averages again. It has remained in a fairly tight range recently but at 1.3%, still remain at relatively low levels. The bond market doesn't seem to be too enthusiastic about the economic growth, but the stock market doesn't seemed concerned about that spoiling corporate earnings or stock prices.




There's an old adage similar to sell in May and go away. That is, sell Rosh Hashanah, buy Yom Kippur: Rosh Hashanah starts on the 17th of September which is very early this year from what I understand and that day also happens to be a quadruple witching expiration day, and historically the week after is not very good. Often when everyone is expecting the same outcome, the opposite may be the more likely result, and almost everyone on the financial shows is talking about the negative seasonality next week. Of course we may have just completed the pullback, so did investors front run the selling by getting out this week instead of next week?

Also, we talked about this earlier in the week - Congress will be back in session next week after their summer recess, which may be a reason for the late September seasonal problems. The rally yesterday fits somewhere in that green area before the 17th - 25th historical weakness.


Chart provided courtesy of www.sentimentrader.com

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The S&P 500 (C-fund) reversed Tuesday's gains and for the second time we saw a pullback that didn't quite make it to the 50-day EMA. It moved down about 100-points off its recent peaks and it may be premature to call the pullback over, but if it is like anything else that we have seen since March, then we would be seeing a move back to new highs soon. If the seasonality chart makes it different this time, we should know soon enough.




The DWCPF (S-fund) also got back Tuesday's losses, but we know stocks don't go down, or up, every day. This could be a short term oversold relief rally, which is what I'd prefer to see, because I'd like to see that open gap near 2190 get filled first before it tries to head back up to the highs. Otherwise I'll be drawing that gap in all the time and it will get me looking over my shoulder knowing it is out there.




The EFA (EAFE Index / I-fund) was up modestly and the weak dollar helped. It's back above the June / August highs, which is great, but again, those three open gaps will have us looking in the rear-view mirror for a while.




The BND (bonds / F-fund) dipped back down after the strong rally on Tuesday. It did remain above the top of that wedge-like formation. It looks bullish, but again, for bonds to go up, yields would have to come down, and why would they if the economy is growing?




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

Tom Crowley



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