TSP Talk Blog

Market timers were kept on their toes on Wednesday as the futures pointed to a positive open, which we got, but then there was a fairly sharp sell off in the first 30 minutes or so of the trading day sending stocks to their lows. From there the indices chopped around quite a bit and by the close it was a mostly positive day, although the Dow did close flat. Small caps and the I-fund led on the upside, and bonds also had an intriguing rally.

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We got the CPI report yesterday morning which showed Consumer Prices had risen more than expected (0.4% vs. 0.3% expected), with a year over year increase of 5.4%, which was the biggest increase since 1991. But that set up a perfect storm of sorts.

The stronger inflationary data may have been priced in already because we normally see bond yield rise when inflation concerns rise. Instead, yields fell for a second day (sending bond prices higher.) The falling yields were music to the ears of large tech stock investors as they rallied sharply.

The lower yields didn't make a whole lot of sense to me unless it was a buy the rumor, sell the news reaction, but the dollar did what you'd expect when inflation is running hot. It fell hard.




When the dollar falls, prices in general tend to go up as we saw in stocks, and the I-fund of course really benefited. Commodity prices also soared as Gold, Silver, and Copper gained 2%, 3%, and 4.4% respectively on the day. Each of those charts look like they are forging a bottom, although gold and silver are now both up against some overhead resistance after their big moves. It looks like make or break time for them.







More economic data today with the Producer Price Index being another indication of the inflationary environment. And of course the weekly jobless claims can also be a market mover as investors have their finger on the pulse of most of the sensitive economic data.

Oct 14

08:30 ET: PPI
For: Sep | Forecast: 0.6% | Cons: 0.6% | Prior: 0.7%

08:30 ET: Core PPI
For: Sep | Forecast: 0.5% | Cons: 0.5% | Prior: 0.6%

08:30 ET: Initial Claims
For: 10/09 | Forecast: 323K | Cons: 332K | Prior: 326K


08:30 ET: Continuing Claims
For: 10/02 | Forecast: N/A | Cons: N/A | Prior: 2.714M

This is an options expiration week so the next two days could be tricky to trade. There is a positive bias this week, but the week after expiration Friday tends to have a more bearish bias.

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The S&P 500 (C-fund) posted a moderate gain on Wednesday, and the positive reversal is generally a short-term bullish sign, but the chart has been damaged a bit as it remains in a downtrend, and right on the neckline of what could be a head and shoulder pattern (blue.) It sits right between a couple of EMAs right now -- below the key 50-day (purple) which is a slight concern.




The DWCPF (S-fund) has had back to back strong days and yesterday it flew right through the 50-day EMA. There's a large head and shoulders pattern on this chart as well so the top of the right shoulder will be the key level to watch for resistance, as well as 2240 where a descending resistance line off the prior highs is crossing.




The EFA (EAFE Index / I-fund) had a big day with the dollar falling 0.55% on the day. The chart doesn't look that good but those open gaps may be a lure, and the successful test of the July lows is encouraging. If the dollar is going to continue to sink, this may be worth the risk.




The BND (bonds / F-fund) rallied big for a second straight day but it is now running into some possible resistance at the bottom of that bear flag near the 200-day EMA.




The Dow Transportation Index was down slightly but it too had a big positive reversal day. It has successfully held above those key moving averages for several days now, but it is getting close to the top of that large trading channel.

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

Tom Crowley



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