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TSP Talk: Relief rally on queue, but can it continue?

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The best stock market rallies usually come during the worst market conditions, and yesterday we saw another example. Stocks opened lower on Thursday but quickly caught a bid and from there moved steadily higher into the close. The Dow gained 372-points and the Nasdaq led with a 2.5% gain. Small caps didn't lead but for the first time in a while they mostly kept up with the S&P 500. Yields moved higher pushing the F-fund lower, and the I-fund also rebounded after Wednesday's major sell off.

Daily TSP Funds Return
More trouble with the banks yesterday but First Republic Bank was given a boost of liquidity as other US banks agreed to lend them $30 billion, easing concerns a bit, but every day there seems to be another name.

FedEx raised their earnings outlook for the year while reporting strong earnings after the bell yesterday. It was up nearly 13% in after hours trading last I checked, so that should give the market a bit of an assist on Friday. Friday is also an options expiration day and, as we'll look at below, is a good news, bad news situation going forward.

Yields rebounded and the 10-year Treasury Yield continued to test, hold, and bounce off its 200-day EMA. It filled a small open gap (blue) but it has a long way to go to fill that red open gap from last week near 3.9%, which seems to be a key level. And additional volatility after next week's interest rate hike / FOMC meeting next week could take care of that gap.

Small caps have been lagging badly, mainly because of the small bank exposure in the Russell 2000 and and our S-fund index DWCPF. The recent selling got so extreme that in the ETF IWM, which tracks the Russell 2000 Index, we saw explosive volume, and that may be an indication of a capitulation low for the small caps. That doesn't mean we can't see a move down to retest the recent lows, but it could be an area where the bulls take a stand, creating decent support.

Today is an options expiration day and volume will be elevated, but for different reasons than what I posted above about the small caps. The good news is, there is a positive bias during options expiration week and day. The bad news is that the week after options expiration week there is a very negative bias with all days having a negative expectation as far as how often they are positive. If there is a caveat, it is that this isn't a typical March. However, the positive bias this week is actually panning out despite the volatility as the C and S funds are up for the week heading into the final day.

Chart provided courtesy of

This is a dangerous market but because some of the best rallies come during the worst market conditions, it does set up some short-term opportunities. Something tells me we will have to be very nimble. Of course if everyone feels that way we could be surprised with a sustained rally as the market likes to fool the most people it can at any given time - especially when volatility is elevated.

S&P 500 (C-fund) managed to make its way back above its 200-day simple average with yesterday's 1.76% gain. There's a whole lot more resistance between about 3984 and 4000 so in the next couple of days we will see what the bulls have left in them. And of course the Fed could change everything next week at their FOMC meeting, but so far there has been some technical progress being this week. The PMO indicator at the bottom is also starting to flatten out right about where it did in early January.

The DWCPF (S-fund) filled an open gap with yesterday's rally as it chops back and forth near the recent lows, which still happens to be above the December lows. There's another open gap near 1670 and that could be a target although the old broken support line near 1660 could pose a problem if the bears still have anything left.

The EFA (I-fund) is also on its way to filling its large open gap from the Credit Suisse sell off on Wednesday morning. It remains below a lot of key support, but so far the 200-day EMA has held up well. Perhaps that was all this was - a bank scare that tidied up some of the charts by testing some must hold support?

BND (bonds / F-fund) was down sharply as the right shoulder of the head and shoulders pattern continues to form. To me this suggests that yields are going to start moving higher again after the recent bank turmoil sent them lower. The question is whether the stock market will appreciate that, or run from it.

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Thanks so much for reading. Have a great weekend!

Tom Crowley

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The legal stuff: This information is for educational purposes only! This is not advice or a recommendation. We do not give investment advice. Do not act on this data. Do not buy, sell or trade the funds mentioned herein based on this information. We may trade these funds differently than discussed above. We use additional methods and strategies to determine fund positions.

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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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