TSP Talk Blog

Stocks bounced back to start the week. The Dow gained 647-points, which was off the highs but obviously a meaningful move and the biggest one day gain since March. The S&P 500 gained over 1% while the small caps of the Russell 2000 and the Transports each gained 2% or more. Bonds fell sharply as yields rallied back from Friday's move lower.

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An oversold rally is not a surprise at this point, but holding and following through may be the tough part as the market tries to fight back from the recent pullback. The market is up against a Fed who is looking more hawkish due to inflationary concerns, and the fall out from the new COVID variant and the governments response, so the bulls have their work cut out for them, and the question is if the selling has been overdone at this point.

The internals were very positive as you'd expects to see with the indices up over 1%, and that hasn't always been the case in recent rallies, so this is a tentatively good sign. The news on the Nasdaq yesterday are a concern but the index closed well of the lows and if we get some follow through upside today, I'd expect that number to shrink today.




The yield on the 10-year Treasury jumped back above the 200-day average with a move back over 1.4%, which send bond prices lower.




Yesterday's action certainly helped the bulls feel a little more comfortable, but we have seen a few one day rallies fail quickly in recent days so today is a key day to see if we get any follow-through to the upside, or if the bears are going to pounce again while they have the advantage during this downtrend.


The recent sell off in crypto-currencies, gold, silver, and oil, gave investors few options and showed how much fear was out there, and that may be leading to selling fatigue. It's a a little early for the traditional Santa Claus rally, but the market has been quite shaken since Thanksgiving week, so I don't know if we can expect a business as usual holiday season this year.

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The S&P 500 (C-fund) gained over 1% on the day but it remains in the range of the previous week's consolidation off the lows. It is back above the 50-day EMA but there's a lot of overhead resistance still, and it will either back down again, or explode higher if it can catch some bids over those resistance lines. It's not that far off the all time highs compared to the small caps, but this resistance area could make or break the chart.




The DWCPF Index (S-fund) filled an old open gap from back in May during the previous two trading days. This chart also has a lot of issues with overhead resistance, and moving above it could trigger a big rally, but if the resistance holds we could get a capitulation-like sell off. It's a very touchy area right now.




The EFA (I-fund) was up and it did manage to close slightly above the key 200-day EMA and is at least pointing in the right direction with that big open gap just overhead. A move up to 79 wouldn't be too tough to hit as a relief rally, but that's where resistance would get stiffer.




BND (Bonds / F-fund) fell sharply almost giving back all of Friday's big gains in bonds. The top of that wide channel is holding as resistance so far. It remains above the 50 and 200-day EMA which could provide support, but that open gap near 84.60 is always a potential downside target.

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

Tom Crowley

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