TSP Talk Blog

The seasonality chart did its job yesterday as it suggested weakness on the Monday after a positive Thanksgiving week of trading. Of course the headlines helped the bears as China deals with massive protests over Covid restrictions, and the market is worried about the ramifications of that situation. The Dow lost almost 500-points with similar percentage losses in the broader indices. Small caps lagged, yields and were mostly flat, and the dollar was up. The latter helped put the pressure on stock prices, although the I-fund continued to outperform with a small loss yesterday despite that rally in the dollar. The C and S funds lost all of last week's gains already.

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Internally it was pretty messy. Decliners easily outnumbered the advancers, and the NYSE trading volume was extremely negative at more than 5 to 1 in favor of declining volume.




The sell off was partially blamed on the protesting in China over the Covid restrictions, but clearly there are other issues involved here having to do with inflation and the potential for recession mostly caused by the rapidly rising interest rates.

These problems will impact earnings into 2023 and the set up for a recession is there with the 10-year / 2-year yield curve now at it most inverted state yet of the year. There are arguments that the inverted yield curve is just indicating that the bond market is pricing in an inflation fix in the coming years, rather than showing short term economic issues.

We know how Jerome Powell feels as he couldn't have been more hawkish in recent statements yet the market reacting as it is expecting some kind of pivot from the Fed. It just doesn't seem to be the case.

Just yesterday we got this headline in the Wall Street Journal. You can click the link to read, but clearly they are still worried about inflation and it doesn't sound like a Fed who is ready to put the breaks on the interest rate hikes.

"Fed’s Williams Says Inflation Fight Could Last Into 2024
"The New York Fed president points to signs that price pressures are easing, but sees inflation remaining above 3% in a year."
-- article

By the way, Fed Chair Powell will speak on Thursday, and it should be his final appearance before the next FOMC meeting and rate hike.

Despite hearing of better than expected Black Friday sales, the retail sector continues to slide lower after pushing back from resistance. This isn't a major focus of mine, but the dismal looking chart is concerning given the hopes we had been hearing about the strong consumer, who are now said to be near 25 year highs in credit card debt levels.




The Dow Transportation Index, one of the brighter spots in the major indices, looks to have fallen victim to a small bear flag, but there will be an important test of support if this falls to 14,000. It is one of the few indices, along with the Dow itself, that is trading above its 50 and 200-day EMAs. That sounds good but it could likely mean investors are being the less risky and buying the more defensive stocks of these indices over tech and small caps.



We will get the November jobs report on Friday and the estimates are looking for a gain of about 200,000 jobs. The unemployment rate is expected to remain at 3.7%.

Admin note: After today's IFT deadline I may be on the road and out of commission for several hours. Wednesday and possibly Thursday may be similar, but hopefully it won't impact anything too much except for may some brief commentaries for a couple days.

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The S&P 500 (C-fund) fell 1.5% yesterday, backing it off from the plethora of overhead resistance. Perhaps we have a small bull flag forming but judging by some of the other charts, it looks more likely that it could be the start of a pullback, perhaps to give the indices some ammunition for a rally deeper into December. There's an open gap above and below the current level but the 200-day moving averages have been very stubborn on this chart and it would have to get above both of them in order to fill the upper gap. The rising wedge formation tends to be bearish as they often break to the downside, so that 3900 level looks to be the key area that needs to hold for the bulls.




The DWCPF (small caps / S-fund) continues to lag after a near 2% loss on the day, losing all of last week's gains. This may be the one to watch as the support in the 1600 - 1625 area may get tested before the other charts test their support




The EFA (I-fund) pulled back but again it held up slightly better then the US funds. It did appear to begin some kind of double top pullback, and if that large open gap is going to attempt to get filled, that would be a loss of close to 6%, so be careful here if you've made money in this fund in November. There's a lot of gains to protect if you were in.




BND (bonds / F-fund) was down slightly as yields were fairly flat on the day. The yield battle right now is between the impact of rising interest rates on yields as the Fed fights inflation, and falling yields which may be an indication of a recession brewing. The chart is up against some resistance right now so for the short-term I'm a little bearish on bonds and the F-fund.




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

Tom Crowley



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