TSP Talk Blog

The back and forth continued yesterday after stocks rebounded on Monday following Friday's sell off. The rescue operation of the struggling banks was the catalyst and we got a relief rally in the oversold indices to start the new week. The Dow gained 383-points and the gains in the major indices got back just a portion of Friday's losses. Yields were up pushing the Fund down, and the I-fund led with the help of a decline in the dollar.

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The market reacted positively to more assistance to the failing backs, and investors are anticipating a less hawkish Fed because of the turmoil in the banking sector. It doesn't sound like a good foundation to build a rally on, but liquidity does lend itself to bullish action. The fear of course is that the added liquidity will add to the inflationary problems.

What a mess as the higher interest rates haven't even had their full impact on the economy yet, but the inverted yield curve suggests a recession is likely at some point. Slowing down or stopping the interest rate hikes might help it, but again, it may delay the inevitable consequence of not dealing with inflation fully.

All that said, it's the pricing action and short term market possibilities that we care about, or at least market timers care about, and we have a setup for some short-term relief. Unfortunately looking out longer term it would appear that the problems could be lingering.

Despite the modest gain yesterday, the banking sector index closed at its second lowest level of the year yesterday, with Friday being the low close, so there's been no meaningful bounce off the lows yet despite the aid being given, and you have to wonder if the rest of the market can rebound if this doesn't tag along?




The Dow Transportation Index, a indication of economic strength or weakness, is also flirting with its recent lows, not giving yesterday's rally in the other major indices much confirmation.




The yield on the 10-year Treasury continues to hold at the 200-day EMA after 5 tests in the last six days. With short-term resistance coming down quickly, something is going to have to give soon between the two.



The dollar fell sharply yesterday, opening up a small gap while trying to fill another larger one just below 28. There is even a larger open gap near 27.50 that could be a target and that could help the I-fund out.

We all know the fundamental picture looks questionable at best, but the charts are better indicators of what is happening, whether specific news is priced in, whether support could hold or not, whether we could see an oversold bounce, etc., so hopefully we can get a better idea of how things will play out by looking at those clues rather than depending on the headlines to push the market around.

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The S&P 500 (C-fund) was up nicely to start the week but the back and forth action has investors a little nervous for today's action. A case can still be made that the recent low on March 13 was the start of a "V" bottom low, but we can't rule out a bear flag yet. The chart did close back above the 200-day EMA, but it did that last Thursday as well, and it didn't hold the following day in this headline driven market.




The DWCPF (S-fund) was up but it closed well off its highs and it is staying stubbornly close to the recent lows. This one looks more like a bear flag, but it could also be a consolidation low like we saw in December, I suppose.




The EFA (I-fund) had a big day with the dollar down 0.57% yesterday. It rallied up to the bottom of that old trading channel and stalled - not quite filling in the open gap near 68.60, and there is another open gap down by 67.50. The 200-day EMA continues to hold giving the bulls a good case for a low.




BND (bonds / F-fund) pulled back and this is playing out just as we'd expect to a see a head and shoulder pattern to play out. That could mean a move back down to the 71.50, and of course head and shoulders patterns tend to eventually break down below the neckline.




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

Tom Crowley



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