TSP Talk Blog

Stocks were up on Friday but it was another very choppy day after a morning rally failed, then bounced back later. The Dow gained almost 200-points and only the tech heavy Nasdaq failed to hold onto some of those morning gains. Bonds were down as yields moved higher. The dollar was also up making the rally in stocks a little more impressive.

Daily TSP Funds Return More returns

The stock market heads into Thanksgiving week in an uptrend since the October lows but the bear market rally is getting a little long in the tooth. However this week is historically a pretty good for the stock market so it will be a battle between seasonality and perhaps gravity. There is also a tendency for holiday reversals where the pre-holiday action tends to go against the larger trend, and after the holiday the large trend resumes. Right now we're in a long term bearish trend, an intermediate-term rally, and in the very short term we saw stocks very choppy, mixed, but mostly flat last week, so that doesn't tell us much. We'll talk more about seasonality below.

The yield on the 10-year Treasury was up on Friday and climbed back into what looks like a bull flag after one close below it last week. It's also back above the 50-day EMA. If it can hold below 4% the stock market can probably continue to rally, but a move above 4% may get the bears growling again.



The dollar has also been sticky on the downside after the waterfall-like decline after the Fed rate hike and CPI report. It looks like a bear flag but there are serious open gaps above that may draw some attention. Whether that happens during a holiday week or after would be the question.

The price of oil fell sharply on Friday, all the way to 77.59 before rebounding later in the day to close back above 80. The September lows were near 76 and it started the year near 75, so it has been almost a complete round trip after it hit 130 last March when the Russia / Ukraine war started.

There's a lot going on but again this time of year the holiday seasonality plays a big role in the action. Here's the November seasonality chart which goes back 30 years. You can see that this week typically gives the bulls the advantage, and even although this is a bear market, the seasonality impact can be just as effective.


Chart provided courtesy of www.sentimentrader.com


Here are some returns of the Tuesday, Wednesday, and Friday of Thanksgiving week.



In more recent years I have noticed the tendency for Friday after Thanksgiving to move in the opposite direction of Wednesday. That is what the W-F column is all about. It's the combined return of the two days. Friday is a half day of trading and when Wednesday was up, Friday has tended to be down, and if Wednesday was down, Friday tended to be a positive day. The half day on Friday last year after Thanksgiving yielded an anomalous 2.3% loss, but that can happen when trading volume is very light and some big money players push things around.

Those numbers are meaningful and I think there is something to that being that trading volume tends to be down and that's generally because traders and larger institutions aren't as active, so the action is more likely driven by the automatic money inflows from pensions, 401Ks, etc., unless there is some major market event that changes that.

If you like some of the more odd tendencies from the stock market, like the market strength depends on whether the Super Bowl is won by an AFC or NFC team, or years when the Phillies win the World Series there has been a financial crisis, here's another weird one that one of our members told me about: The World Cup apparently has a tendency as well. They told me that the market does well during the World Cup, which started yesterday, but is weaker after it's over.

I hadn't heard that one but I found some more negative tendencies about that going back to 2002:


Chart source: MarketWatch.com

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The S&P 500 (C-fund) has been in an uptrend since the October low, but the bear market rally is getting quite stretched. The market is heading right into the strongest seasonal period of the year, but because of the bear market losses, it may not be as simple as looking for a Santa Claus rally this year. Tax selling will be an issue so picking the spots to be a buyer will be important. Open gaps above and below the current levels give the bulls and bear some targets. The chart also sits within a narrowing spread between the 50-day EMA and the 200-day averages (3850 and and about 4070) so the lines in the sand have been drawn and we we could get some choppy action for a while. That 3900 looks very compelling as it has been in play for months now as both support and resistance.




The weekly chart shows some possible resistance just above last week's highs and that leaves a lot of room on the downside within the trading channel, but there's always the possibility that we see an upside breakout. Not that I expect that, but since "they" love to get investors leaning the wrong way, it wouldn't be a surprise to see some kind of fake out in that direction to push sentiment to the bullish side before pulling the rug out again.




The DWCPF (small caps / S-fund) saw a pretty big pullback last week although it closed off the lows after bouncing off the 20-day EMA (green.) Friday's was up but closed well off the highs after filling in that blue gap from the prior day.




The EFA (I-fund) was up on Friday but it is hovering near the 200-day averages with big open gaps below. It's near the top of a sharply ascending trading channel so it may need a breather, but again the positive holiday seasonal bias could try to keep it buoyant.




BND (bonds / F-fund) is also at the top of its new ascending trading channel with open gaps below, so there is some reason to be cautious in the short-term. That large open gap looks like a target for any pullback in the coming weeks.




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

Tom Crowley


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