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TSP Talk: Stocks start the week with a rebound

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Stocks have been due for some relief and we saw some of that on Tuesday following 10 down weeks out of the last 11 for the three major indices. The Dow gained 641-points but there was a little selling in the final hour of trading as investors still show signs of being nervous in this "sell the rallies" environment. We saw a big bounce back in the energy sector as it led the way higher despite the price of oil - while up modestly yesterday - remaining near recent lows. Smalls caps and the Transports lagged as they couldn't quite hit the 2% gain level.

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Internally the advancing issues and volume easily outpaced the decliners on both the NYSE and the Nasdaq, with the NYSE volume breadth came in more than 4 to 1 in favor of the advancing volume.

The price of oil was up 1.4% after getting beaten down hard last week. The rally however, stalled at the 50-day EMA, but that's not unusual on the first attempt. What happens the rest of the week will be crucial for the energy sector if it wants to continue to lead a relief rally in stocks higher. $105 looks to be the make or break area for this recent uptrend.

I don't want to dissect the action too much at this point because whether we were in a bull or a bear market, the indices had been beaten down enough to bring them into oversold territory and a rebound is not a much of a surprise. The question is how much staying power does any rally have at this point, and bear market rallies can pack a big punch. I'd like to think there's more upside to go with open gaps above on the charts, but I wouldn't want to get too greedy as the bears will show up again in an environment like this. It's just a matter of time, but the market loves to punish those who think anything is a guarantee and short-squeeze rallies can give those bears a lot of pain first.


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The S&P 500 (C-fund) broke its short-term descending resistance, but that was not an angle of decline that we expected to last forever. Now the question is whether it is a break in trend or just an quick oversold bounce. The overhead open gaps are there for the taking but everyone sees them and the market doesn't always do what is obvious to everyone so if I had to guess, and that is all this is, we could either see the upper gap remain open, or the relief rally explode higher than we all expect and shoot through the top of the resistance line. I don't know, but one of those would fool the most people rather than filling both gaps and rolling over. Oh, and did I mention that yesterday' strong opening created a small open gap on the downside?

The other charts looks very similar: The DWCPF (S-fund) also has a couple of large opens gaps above and now a small open gap below. This looks a little more suspect and small caps did lag yesterday, but if the overhead open gaps on the S&P 500 chart get filled, we should also see some upside here as well. Of course the the small open gaps below the current level on both charts could get filled first I suppose.

The EFA (I-fund) also gapped up and this one recaptured the bottom of the large red trading channel. It has come down so sharply that it makes it tougher to just come back quickly and recover the losses so we have to be on the lookout for a bearish flag forming. The rally in May came off of a steep decline as well in early May so hopefully that rebound can be repeated here in June.

BND (bonds / F-fund) was down as yields continue to creep higher. I still see no reason to do any speculating here.

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

Tom Crowley

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DWCPF (S Fund) (delayed)

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EFA (I Fund) (delayed)

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