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TSP Talk: The bears step aside for another day

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I would define the action on Wednesday as chippy. It gave both the bulls and bears something to chew on, but frustrated both as the deeply negative overnight futures rolled over into Wednesday's opening, but it was quickly bought. The bulls then took over until later in the afternoon where the buying dried up and the bears came back in the picture to pull those gains away and push the indices into the red, although basically flat. The Dow closed down 47-points but it was positive literally 3 minutes before the close. It was down about 300 points at its lows, and up over 200 at its highs so there were really no winners but I think the bulls were the ones who missed an opportunity.

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The price of oil was again one of the key headlines as it was down more than $4 a barrel, and the news was that President Biden called on congress to pass some kind of short term suspension of the federal gasoline tax, but both parties in congress were resistant to the idea. That caused some volatility after lunchtime ET, as stocks spiked higher but quickly retreated afterward.

The last two days had a similar feel as the bulls bought early but the indices peaked early, retested the highs but then drifted lower into the close. The bulls appear tentative despite having a door slightly opened for them, but the bears have only put on modest pressure under these conditions so it's a bit of a grind right now.

The concern has turned from high inflation to what the interest rates hikes are going to do to the economy, and a drop in Treasury Note yields was a result as the 10-year fell 4.6% down to 3.16%, which was the lowest close in a couple of weeks, and that helped the F-fund out yesterday.

We are all aware of the trouble that the economy and stock market face, but the stock market does not follow the economy, but more so leads the economy. That is, it is more of a leading indicator where we saw stocks falling before the economy showed any trouble and well before the Fed started to raise interest rates.

That means the stock market can bottom and start to move higher while we are still being bombarded with poor economic data. That could even happen in the middle of a recession, which is looking more and more likely. I'm not saying that is happening right now - it could be months, no one really knows, but down the road if you wait to do any buying until you see evidence that the economy is recovering, you will probably miss the first leg up off the lows.

Lots of smart people are saying this could be a good time to start buying stocks, while other very smart people are saying that there is an economic hurricane coming. I'm just saying that you may be better off watching the stock market for clues that the economy is improving, rather than the economic data.


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The S&P 500 (C-fund) closed down after spending most of the day in positive territory. One consistent pattern that we have seen over the last two weeks is that the index has closed off its highs - even during Tuesday's big rally. The overhead gaps remain open but so far there has been no signs of a rush to get those filled. The trend is down and the market is looking for some kind of catalyst to give it a reason to rally. Whether we get that catalyst or not may determine if those gaps get filled or not in the short-term.

The DWCPF (S-fund) was down sharply early and if we want to look for an optimistic view, it did fill the open gap from Tuesday morning, including the stealth gap which went from Friday's close to Tuesday's lows. Unfortunately for the bulls, after filling the gap and bouncing off the lows, it couldn't get any more traction.

The EFA (I-fund) is floundering near the recent lows although it too filled Tuesdays open gap which may have had to be done before any attention was given the two large open gaps overhead.

BND (bonds / F-fund) was up big and the highs yesterday filled the open gap from June 10th. The question now is whether the top of the gap acts as resistance and the bears pull it down again, or if it can make another journey to the top of the trading channel.

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

Tom Crowley

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S&P500 (C Fund) (delayed)

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DWCPF (S Fund) (delayed)

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EFA (I Fund) (delayed)

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BND (F Fund) (delayed)

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