TSP Talk Blog

The upside rubber band continues to stretch with more gains for the stock market on Thursday. The Dow added another 206-points with tech stocks leading the way. The S&P 500 (C-fund) and DWCPF (S-fund) both gained about 1% while the I-fund lagged as the dollar rallied on the stronger than expected 4th quarter GDP report. Bonds also lost ground on that data as yields rallied.

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The GDP report for the 4th quarter came out a little stronger than was anticipated and that sent bond yields and the dollar higher, but stocks also rallied despite those two headwinds. We do have to put that in context however as that is data from October thru December of 2022 and is rear-view mirror information, and the stock market has been rallying since the lows in October. Once again the stock market seems to write the news. So what's next?

The index charts look good but the indicators are showing fatigue on many of those charts. It's been a good rally and it may be getting a little extended, but because there were so many bears with a lot of cash on hand coming into this year, the FOMO (Fear Of Missing Out) rally may be able to continue until that is exhausted. How long will that take, well we are seeing signs of sentiment getting a lot less bearish, which means some of that cash has been put to work already.

After the bell yesterday Intel reported disappointing earnings and that could put some pressure on tech stocks, because if the semiconductors sell off, that has a domino effect in many areas of the tech world.

The dollar was up yesterday but we see that bear flag still forming so it still looks like it could go lower. That is unless we see more strong economic data come out, or be projected, like that GDP report.



The 10-year Treasury Yield was also up on the strong GDP number but this still looks like it could be in trouble if the head and shoulders pattern plays out as it is supposed to. That would be bullish for bonds and the F-fund which was down yesterday.

This chart shows one of the indicators that could be showing signs of fatigue for the S&P. The MACD indicator (moving average convergence divergence) shows lower readings while the S&P 500 is making higher highs. That negative divergence may be a warning sign, although it doesn't necessarily mean stocks have to rollover here to new lows. But a little pause is possible. There was a negative divergence in November that eventually led to a big pullback, but you can see that the negative divergence went on for weeks before the S&P eventually peaked.




The February seasonality chart from sentimenTrader.com shows that there can be trouble in the second half of the month but with major earnings announcements and the Fed raising interest rates during the first few days of the month, we could see some volatility next week.

Chart provided courtesy of www.sentimentrader.com


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The DWCPF (S-fund) chart did break out above its inverted head and shoulders neckline. This probably couldn't look any better, but it has gone from 1560 to 1730 in the first few weeks of this year. That's quite a move and it could pause here, if not pull back into that right shoulder again, before a more sustainable breakout occurs.




The EFA / I-fund remains in a tight ascending channel and has been leading the way, particularly on the days when the dollar is falling, which has been often lately. Like the other charts it could be a little vulnerable, but it has been the most stable.




BND (bonds / F-fund) pulled back a bit yesterday and while we do see some technical issues with some indicators in bonds, the trend is up and 74 then 73 look like the lines in the sand for support.




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Thanks so much for reading. Have a great weekend!

Tom Crowley




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