TSP Talk Blog

It was another mixed week for the TSP funds after a comeback move by the bulls to end the week on Friday. For the week the S&P 500 was down slightly while the smalls caps of the S-fund and the International I-fund both closed slightly higher. The F-fund (bonds) were down on Friday and also slipped 0.15% for the week. The I-fund continues to lead for the year with an impressive 11.7% gain. Now we head into one of the most key earnings weeks of the quarter with many of the big tech stocks due to report.

Daily TSP Funds Return More returns

As you can see above, for the month U.S. stocks have been mostly moving sideways, which isn't a bad thing after the big rally in the second half of March. The issue going forward is not straight forward. We have some good looking charts, and some troublesome charts. We have some potential bad news on the horizon if we do get the suspected recession that has been percolating for months, but the dramatic bear market of 2022 may have priced that in, if those losses (27% from top to bottom in the S&P 500) were not just about inflation.

So, if you're not confused, you're a better analyst than I am because admittedly my head is spinning.

The S&P 500 chart looks good. It's in an uptrend, near the recent highs, and has the potential for an imminent breakout. With just a half dozen or more major tech stocks making up a large majority of the index, this week's earnings will be critical to keep this rally going. Many analysts have been anticipating a meaningful slowdown in earnings caused by inflation and higher interest rates. If they can prove otherwise, the market could take off. If they do flounder, perhaps the bears will be right and we start to push toward lower prices again. Here is a 3-month chart and a 17-month chart.



The 17-month chart shows that we have been tagging this 4100 - 4200 area several times over the last year and a breakout in either direction from a long-term consolidation like this could be quite large. This has been an area of resistance.

The DWCPF, or S-fund, looks completely different. It has hasn't been held up by those half dozen large tech stocks like the S&P 500 and Nasdaq. It did manage to move above the descending resistance line last week, but it does remain in a bear flag, which generally tend to break down, although that hasn't always been the case over the last year or so.



The longer-term S-fund chart is also moving sideways, but the direction of the next big move doesn't look quite as compelling as the S&P 500 long-term chart because of the short-term bear flag. It looks ominous and a lot of that recently has to do with the vulnerability of those small regional banks that populate the index. If those small banks flop, the S-fund will have a tough road. If the small caps recover, this could have a nice move higher.

Can the S&P 500 breakout if small caps are breaking down? That's a tough one since it would be fairly unprecedented.

As bearish as I have been recently, I can't help wonder if my bearishness is due to all the negative expectations out there, that could very well have been priced in already. My trading system, as our TSP Talk Plus subscribers know, has been a lot more bullish than I have been personally. A system is not emotional and I, like most investors, am emotional so I know not to completely trust my sentiment.

And when everyone seems to be bearish, the opposite outcome can become more likely. Take a look at this graph from J.P. Morgan Research:

95% of J.P. Morgan's investors believe stocks will fall the rest of the year. Just 5.5% think the S&P 500 will be higher at the end of the year than it is now. That's unheard of. I know some of you might ask, how is that bullish for stocks? Well, if 95% of investors thinks stocks are going down, don't you think they have been selling this whole time? Who is left to sell? Those 5% who are still relatively bullish?



That's not how it works. It's more likely that those 95%, who have large allocations of cash or bonds, will provide the ammunition to keep a rally going as dips get bought like we have seen all year despite the bad news out there.

On the other hand, we take a survey here on tsptalk.com each week, however it is specific to the next week's action in stocks and not a prediction for the end of the year. But take a look at what our readers thinks about the short term...



That's a far cry from the 95% bearish in the J.P. Morgan survey. Maybe TSP Talk readers are just smarter?

This chart could be the tell for the rest of the market as it is very sensitive to economic conditions. The Dow Transposition Index is in a long bearish flag that looks dangerous, but within that bear flag is a bullish looking cup and handle formation, which typically break to the upside.




It's never easy.

Microsoft, Amazon, Google, and Facebook (Meta) report earnings this week so it could be a choppy week if they are not all telling similar stories. The PCE prices reports will be released on Friday - a big one for the Fed. The Fed FOMC meeting, Apple earnings, and the April jobs report are on the schedule for next week.


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I went over the S&P 500 (C-fund) and DWCPF (S-fund) above.

The EFA (I-fund) has been the leader of 2023 by far, and that has been a direct result of the slide in the U.S. dollar. It looks primed for another breakout, however there are two issues here. One is all of the open gaps below. Gaps tend to get filled sooner rather than later, so you can see all the problems below. The other issue is that the dollar actually broke above its descending resistance last week. That doesn't mean it is in a new uptrend yet, but it is a change and a potential warning sign for the I-fund.




BND (Bonds / F-fund) found some support last week after a sharp pullback off the false breakout on April 5th. There are open gaps on this chart as well, on both sides, so short term things could go either way, but as long as it holds above that 73+ area, I think the bond bulls may have the edge.




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

Tom Crowley


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