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TSP Talk: The Bulls Have a Day

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Stocks bounced back on Friday after a few of days of selling triggered by the rallies in the dollar and bond yields. The Dow jumped 483-points, getting back a good chunk of Thursday's 547-point loss. Meanwhile the S&P 500, Nasdaq, and small caps recovered all of Thursday's losses. The I-fund was down on Friday but it had some payback due from Thursday's over-pricing. For the week, all of the TSP stock and bond funds were down.

Daily TSP Funds Return

The dollar pulled back for second day after the 2-day explosive rally that shook the stock market for a few days last week. Can anyone think of a reason, with multiple trillion dollar spending bills on the table, why the dollar would be going higher for the last four months? I suppose the Fed's plan to start tapering their bond buying could be a catalyst. It does have a good looking chart, but I can't imagine it can keep going higher into the end of the year, despite the breakout from the bullish formation.

The price of silver could be a tell. It has fallen sharply since the dollar started rallying last spring, but the 21 - 22 area looks like solid support, and if it starts to act particularly strong, we might take it as a sign that the inflation storm may be moving into another gear. That would be worrisome.

And as good as the recent positive reversal looked in the stock market, as far as just another buyable dip, the situation in China with Evergrande defaulting on debt could still come back to haunt the market, just as we've put that in the rear-view mirror. If we start to see headlines about the China's Bond market being in some trouble, it could be the shot heard around the financial world.

Obviously inflation is a concern that we've been hearing about and the data might start come out with more concrete numbers that may get investors nervous, and with supply chain issues, that concern may accelerate faster than we thought. When supplies are low and demand is still there, prices will go up.

I had been pounding the table for months on the boring yield of the 10-year Treasury, but that was the thing to be watching, and we saw what happened to the stock market in September when that yield started to move up quickly. It wasn't high, but the rate of the increase is concerning.

Now I suggest watching boring silver, which closed about $22.50 an ounce last week. If it starts to shoot up, it could be our warning sign that the next shoe is about to drop on the inflation front.

Gold may be the new persona non grata with bitcoin taking more of the role of a non cash position, although it is certainly not a safe haven like gold has been. Silver is still used for industrial purposes so it has it's purpose and may still be a hedge again inflation.

Bottom line, if this bounce in stocks fails and the market flips over again, watch silver and perhaps jump on the band wagon. I own some silver coins but I am by no means a gold / silver bug. The silver I have are TSP Talk Silver "rounds" that we had specially made for us and we sold for a while several years ago for the coolness factor and for some, to have and hold some silver. I don't sell them anymore, so that's not what this is about. I'm just glad I held onto a bunch of them. I did acquire the dies they used to make the coins so if anyone has any silver bricks they want to sell me... :^)

But I digress.

Here's the yield on the 10-year Treasury which pulled back sharply on Friday, perhaps igniting the rally in stocks. There's some decent support near 1.4% and if it does hold there and start to bounce again, the stock market could get cranky again.

We've seen the 3rd quarter GDP estimates get cut in half in recent weeks and the vaccine mandates could cause more problems in the coming months if some employees start to leave their jobs, so I would think that would have to have some kind of impact on the economy. Federal government employees will have until November 22nd to get vaccinated or submit to weekly testing, otherwise they could face "progressive discipline", which I assume includes termination. The VHA's deadline is this coming Friday. From what I understand, and I could be wrong, if these employees do leave under the criteria of the execute order, they may not be eligible for unemployment benefits. We'll see what kind of impact this has on the economy and the stock market.

The September Jobs Report will come out on Friday morning before the opening bell. Estimates are looking for a gain of about 450,000 jobs and an unemployment rate of 5.1%.

The S&P 500 (C-fund) did what the bulls would have hoped, and that is have one more lower low that preceded a reversal and one of those kangaroo tail reversal patterns as we have seen so often this year. The thing to watch, now that we have seen a second lower low, is whether we get another lower high, lower than the peak on September 23 and 24. If that 4475 level can get taken out on the upside, only then would I say the bulls are back in charge. For now, Friday was a good day for traders who were calling for a relief rally. But officially the chart is still in a short-term downtrend until we see a higher high.

The DWCPF (S-fund) also has a series of kangaroo tail positive reversals right at the rising support like and the 135-day moving average. The fact that is closed above both of those is a big plus and it makes it look like just another higher low - as opposed to the lower lows we saw on the S&P 500 chart - is a bullish development, but that 50-day EMA looms above as possible resistance. If it can clear that, it would be great, but there's more resistance near 2265.

The EFA (EAFE Index / I-fund) was up and had some help from a pullback in the dollar. You can see that Friday's low finally filled in that open gap from mid-July. Closing above that gap was a bullish development, and with that other large open gap near 80 still there, the positive reversal may have its sights set on that number as an initial upside target - which also happens to be where the 50-day EMA is currently.

The BND (bonds / F-fund) rallied enough to fill in the open gap from last Monday, and it is back above the 200-day EMA. With the stock market so sensitive about bond yields right now, a push back up to the 50-day EMA on BND might keep Friday's rally in stocks going.

The Dow Transportation Index gained nearly 2% but the chart still remains in a tough spot, and that 14,000 area really needs to hold on the downside.

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

Tom Crowley

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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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