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TSP Talk: The weak dollar helps push all prices higher

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Stocks rallied for a 5th day as they explode off the September pullback lows and are flirting with new highs already. The Dow gained nearly 200-points on the day with gains of 0.50% to 0.75% in many indices. Bonds were down sharply as yields rallied, and seeing a spike in yields and a big rally in technology stocks has not been normal lately, and we'll take a look at that. The dollar was down helping in prices of commodities - and the I-fund.

Daily TSP Funds Return
We know that a weak dollar can help push prices higher, in almost everything that is sold in dollars. Stocks were the beneficiary of that, but so was gold, silver, oil, bitcoin, etc., yesterday, and now the dollar may be breaking down after yesterday's gap lower. It's too early to say this is inflation doing its thing, because obviously the dollar has been rallying for the last month while we were talking about inflation. But if there is going to be accelerated inflation, we would probably see the dollar continue to rollover.

One surprise to me this week has been the strength in the large tech stocks ($NDX = Nasadq 100 Index.) For quite sometime we have seen this index struggle when yields are moving higher. You can see how often they move in the opposite direction. But in recent days the NDX has been moving up effortlessly with the rest of the market while yields are nearing multi-month highs.

Next week the Big Tech FAANG / MAGA, whatever you want to call it, stocks will be reporting earnings and that will be interesting with yields at these levels and moving higher. The earnings tend to be very good, but they better be, because the chart above suggests something has got to give.

Breaking down a late-year seasonality chart from Bloomberg and GS Sales & Trading, shows (if you can read it) that October 21 seems to be some kind of a peak period, which lasts about a week, and of course this coincides with the release of 3rd quarter earnings reports. But then starts the typical positive holiday seasonal period into the end of the year. This data goes back to 1928.

Seasonality is not normally a primary indicator for me, unless it is surrounding certain holidays where it is tough to ignore. But it is part of my analysis and everyone know November and December tend to be good - although not every year. 2018 was a disaster for the fourth quarter.

Wow... On October 19, the GDPNow model estimate for real GDP growth in the third quarter of 2021 is 0.5 percent, down from 1.2 percent on October 15.

The S&P 500 (C-fund) did it again; another gap up opening making three in the last four days. It's getting close to the old highs where we could see some double top pullback action, but certainly at least one or two of those gaps should get filled soon, or at least the bulls should hope they do, otherwise they'll be looking back at them for a while knowing they will eventually get filled. The action is good, but too much, too fast?

The DWCPF (S-fund) was up and made a 6-week high yesterday. In recent days it has lagged the large caps a bit, but led the Russell 2000 small caps. There is a large open gap here as well that, if it doesn't get filled soon, you'll get tired of me talking about it, because that has to be a potential pullback target.

The EFA (EAFE Index / I-fund) also gapped up, so that's three gaps below and one open gap above the current level. It's back above the 50-day EMA and that large gap September 27. There's one more possible resistance line before this attempts a shot at the old highs, and you can see that it is not near as close to the old highs as the S&P 500 and small caps charts are.

The BND (bonds / F-fund) was down hard with those yields rising. The only positive thing I see here for the F-fund is that it could - not that it will - but it could get a double bottom bounce, assuming it tests the 84.80 area again.

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

Tom Crowley

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