TSP Talk Blog

The bulls made a midday push to tack onto Friday's rally, but instead we saw come consolidation of those gains either because of some "profit taking", or just a the typical sell the rally mentality in a bear market. There are not many profits to be had out there but the S&P 500 had moved up about 5% from Thursday's low to Friday's high, so that a decent move. A modest 16-point decline in the S&P following a 93-point gain isn't very meaningful, but it does give us an idea how tentative the bottom fishers are, and the bulls had to be disappointed. The indices were mixed with the Dow up slightly, but those volatile small caps lost over 1% yesterday after Friday's 4% gain.

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Some weak economic data out of China on Sunday night reversed some positive over night futures, and that rolled over into Monday's open giving the relief rally a reason to pause. Absent of any subsequent news, can we see a meaningful rebound? Probably, but it may just be a trading opportunity and not a great investment.

Since the indices spent a good part of the day in positive territory yesterday, we did see some internal positives but if the closing bell came an hour later we may have seen the NYSE numbers to lean on the declining side. Instead we did see more up issues and advancing volume on the NYSE. The Nasdaq was a different story and it spent most of the day in negative territory with negative breadth outpacing the advancers. This was following Friday's rare 90% plus advancing volume over declining in the NYSE.



The market leading Dow Transportation Index is looking concerning. On Friday, while most stocks were soaring, this index, while up, did put in a negative reversal day and yesterday's losses erased most of Fridays gains. It sits below a support line that could now be resistance if it doesn't bounce right back, and the large head and shoulders pattern would have a downside target more than 1000 points lower if it can't hold here.



The question would be, can the rest of the stock market have a typical relief rally that lasts more than a couple of days, if the Dow Transportation Index doesn't participate?

I have been anticipating some kind of bounce and we did get that 5% move off the lows on Thursday and Friday. There could be more but the bigger picture may still be concerning. When you look at some stocks, particularly the ones that were so successful for so long, start to crumble and hit prices that we haven't seen in a long time, you start to wonder if it is even possible for them to go lower since they seem to cheap now. I've talked about the ARKK ETF that has done so poorly this year but the Chinese Internet ETF has done even worse - so maybe things can still go lower? When is cheap, cheap enough?




In a bear market prices don't usually go from extremely overvalued, to overvalued, to fairly valued, and it's done. The momentum tends to continue to put pressure on prices until stocks become undervalued or extremely undervalued before a bottom is in.

Again there is difference between looking for a short term bounce and being bullish. I usually don't look too far out into the future so my stance now is to play for a bounce, and if we get to one, take that opportunity to raise cash.
Federal Reserve Chair Jerome Powell will be speaking today and we know how the market hangs on every word from him or any Fed governor. What if he takes back his statement about 0.75% rate hikes being off the table? There could be some fireworks.

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Update: It is official that the TSP will stop processing IFTs after noon ET on May 26 through the "first week in June." There were some concerns that it may have started on May 16, but it is indeed 5/26. What exact day the first week of June is, I don't know yet.

More: https://www.tsp.gov/new-tsp-features...ansition-dates

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The S&P 500 (C-fund) failed to add onto Friday's rally but the bounce off a confluence of support near the low last week is holding for now. There is some room on the upside before this tests the top of that red descending trading channel, but the resistance is falling quickly so it could actually hit that resistance without moving much higher. If it does manage to break above that channel there's more resistance near 4100. That's not a great outlook but it also wouldn't be out of the ordinary to see a move up to the 50-day EMA at some point during a bear market rally. That is currently at 4282, but that is also declining each day.




The DWCPF (S-fund) also disappointed as the buyers who pushed this index up 4% on Friday, dried up yesterday but technically it wasn't terrible, and a resumption to the upside today could save it. There's some possible support at that blue dashed line.




The EFA (I-fund) closed with a small gain as the dollar was down moderately and there tends to be a lag in this fund as U.S. stocks trade after the overseas markets close.




BND (bonds / F-fund) was up but remains in the descending channel, and it looks like yet another bear flag has formed.

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

Tom Crowley

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