TSP Talk Blog

Stocks bounced back on Tuesday as the choppy action near the recent lows continued. There was some late selling so you can tell there isn't as much enthusiasm to buy the dips as we've seen in recent months, but support is still trying to hold. There are several dark clouds overhead with the debt ceiling deadline approaching, spending bill negotiations that are going nowhere fast, earnings warnings season is here, inflation concerns, possible rate hikes on the horizon, and the GDP keeps dropping. Oh, and the price of oil is now flirting with $80 a barrel, which is double what it was last year at this time, while natural gas has nearly tripled. Not a great combination, but the bulls are still trying to hang on.

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The internals were strong, although neither the NYSE nor the Nasdaq saw 2 to 1 advancers over decliners, so there's no breadth thrust type action yet. The Nasdaq also saw another 226 new lows yesterday despite the big gains.

The 10-year Treasury rallied, and that looks like a bull flag on the chart. If that breaks out, the stock market may have another reason to sell off.




The dollar rallied filling in another overhead gap, but all of the other open gaps are on the downside.




Stagflation anyone? Despite recent inflation, GDPNow reduced their GDP estimate yet again for the third quarter GDP. The new growth estimate is just 1.3%. Inflation plus a sluggish economy is what they call stagflation and it could be a dangerous environment for the stock market.



So even if the market acts well, we have to be very careful about thinking that all is well. I mentioned a handful of issues up in that first paragraph, and now stagflation may give us another reason to be flexible and nimble in our allocations. The buy and holder may win out yet again, but there could be some bumpy roads along the way.

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%.

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The S&P 500 (C-fund) has now had 4 days of back and forth action and unfortunately that doesn't give us too much information except that the next move could be a big one, but the direction of that move is questionable. The atmosphere feels like it wants to go lower, but the chart in 2021 has continually rewarded the bulls for staying aggressive. It closed back above the 100-day average and 4400 could be key resistance if it can continue higher, even though there is an open gap up near 4435.




The DWCPF (S-fund) had a nice gain Tuesday but it closed well off the morning highs and struggled all day after making that high. It did close back above its green moving average, which is a plus, but as you can see, it typically bounced right off that average without any problems in the past. This time it is struggling.




The EFA (EAFE Index / I-fund) was up but the rally in the dollar may keep it lagging the U.S. funds. This looks very oversold and with those large open gaps overhead, there could be a relief rally in sight, if the U.S. market doesn't fail at its support.




The BND (bonds / F-fund) was down again and we have what looks like another bear flag for bonds. It also closed below the 200-day EMA after a couple of closes above it. If this breaks down I am concerned that stocks will follow.




The Dow Transportation Index rallied nearly 2%, which is impressive considering it came into Tuesday with a nasty negative reversal on the chart. Yesterday's high hit resistance at those moving averages again, and there is a possible bear flag here as well (blue.)




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

Tom Crowley



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