TSP Talk Blog

We are still seeing a lot of rotation and divergences between the indices, and Friday was a vivid example. The large tech stocks of the Nasdaq continue to defy gravity while the broader indices, particularly the small caps, have been pulling back and consolidating their big October gains. The Dow lost 269-points and only 7 of the 30 Dow stocks closed positive on the day. Bonds were up as yields fell, and the dollar also rallied to new highs again.

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It's a short holiday week and generally the bulls have the advantage, but we come into this week with the broader market showing signs of weakness in some indices. The question is whether the seasonality can override the recent hiccup.

This is old data but it goes back to 1950, and it shows that a clear bullish bias during the two day surrounding Thanksgiving Day, but the bears tend to show up after the weekend.


Chart provided courtesy of www.sentimentrader.com


Here is a chart of November and December from the prior three years. In the orange boxes are the days from the Monday before Thanksgiving, through the first three trading days in December. Three years isn't a great indication of anything, but each year did show late November gains, with selling to start December in two of those three years.




The 10-year Treasury Yield fell for a third straight day on Friday. Perhaps it is just some consolidating of the recent rally, but another possibility is that the inflation concerns are waning because if the economy is growing and inflation is a problem, we probably wouldn't be seeing yields falling. We would more likely be worried about yields rising too quickly, rather than dropping.




The dollar is also not acting like inflation is a problem as it hit another new high on Friday, after busting through resistance last Monday.




There is a long list of economic reports coming out on Wednesday that could make it an interesting day. It's normally a very strong day, as you saw in the Thanksgiving seasonality chart above (positive about 80% of the time), but with this market on the lookout for signs of excessive or waning inflation, these reports could dictate the action, especially if trading volume is on the light side as people head to their holiday destinations.


Chart source: www.briefing.com/calendars/economic?Filter=Week2

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The S&P 500 (C-fund) has been flirting with breaking out to new highs but nothing yet. Will this week's strong seasonality help, and if it does, can it hold after the advantage into the normally weaker seasonal data that we see for next week? Trends can't last forever but the support from that narrow blue rising trading channel has been holding for a month now. Large tech stocks have been keeping the C fund the leader of the TSP during this time.




The DWCPF (S-fund) continued its rolling over action after peaking two weeks ago. There was some support broken on Friday as the old resistance line failed to hold. There's a small open gap near 2300 where the 50-day EMA also resides, and that could be a potential target, but it is hard to ignore that large open gap near 2240 that we've had in our rear-view mirrors for more than a month now.




A longer term view of DWCPF (S-fund) shows some support at Friday's low (old red resistance line), so it is possible that we get a holiday week bounce off that support. This chart broke out from a long consolation earlier this month, and often the move out of a long consolation can be explosive, but the recent pullback is giving investors some concern that the breakout could be failing.




The EFA (I-fund) fell sharply on Friday with the dollar rallying again, and it closed below the 50-day EMA. We have been watching the pattern of the blue boxes repeat, and if it continues it doesn't bode well for the I-fund. Can the holiday atmosphere spare this from repeating that dreadful September decline?




BND (Bonds / F-fund) was up on Friday but the 50 and 200-day EMA held as resistance, and it also happens to be the top of the right shoulder of the head and shoulders pattern that we have been watching form. This chart looks bad as the H&S pattern could be telling us the the relief rally is over. But it is a holiday week and sometimes the typical action is anything but typical leading into a holiday.

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

Tom Crowley

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