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TSP Talk: Another day of consolidation for stocks

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Another choppy day for stocks as the digestion of Friday's big rally continued. Late selling in the final hour of trading stopped an attempt by the bulls to erase the morning losses as the indices were hitting their highs by mid-afternoon. The debt ceiling meeting being held at The White House after the bell yesterday may have triggered some of that late selling. The Dow, down 57-points, and the small caps held up best with each posting minor losses of less than 0.20%. Bonds were down for a 4th straight day.

Daily TSP Funds Return
We get the CPI report this morning before the opening bell. On Thursday we'll get the PPI report, but right now the market's attention has been shifted to the shiny debt ceiling object over there. Obviously the term "ceiling" seems insulting since there doesn't seem to be a ceiling anymore. Yes, it's critical and I don't want to downplay the importance, but the financial news cannot stop talking about it. Some say this will tank the market, so that's getting a little priced in this week, while others believe the market will continue to climb the wall of worry, and possibly breakout on any positive resolution. The question for now is, will it get resolved with some tough negotiations, or will they just kick the can down the road again, or does it matter which?

It's just more noise as the charts seems to indicate that we have a mixed market that can't seem to find coordination. The Nasdaq chart looks particularly good. The S&P 500 looks fairly good, but the small caps and the Transportation Index continue to struggle below resistance in bearish formations.

The pullback over the last two days, on the heals of the big rally on Friday, isn't a concern yet. This is typical. But how deep the pullback goes can be an issue because we have some lines in the sand for the S&P in the 4050 area, which is about 70 points below the current level, or 1.7%.

We see similar big rallies over the last couple of months, and many of them are followed by a couple of days of consolidation, so as of now, this looks OK. But a close below 4050 and we may have a problem.

Here's another one of the problems. Without heavily weighing the large tech companies in the index, the S&P 500 chart looks a lot different. Below is the equal weighted chart of the same 500 stocks, and while that actually looks like possible bullish, albeit slanted, inverted head and shoulders pattern, it remains below the major moving averages and that descending resistance line, and it may need a breakout above those to get investors in the mood to aggressively buy again. Will a resolution to the debt ceiling be the catalyst?

The Yield on the 10-year Treasury was flat as it continues to knock on that overhead resistance door. Today's CPI report and tomorrow's PPI may be the catalysts to push this out of its range between 3.30% and 3.65%. If you are in the F-fund, you would want to see this move lower since bond prices move counter to yields.

The S&P 500 (C-fund) remains in a range and the battle over a possible peak in interest rates and the chances of a recession, plus the debt ceiling chit show, has this chopping back and forth near the 2023 highs. The fact that it is hanging out near the highs seems bullish consider what is going on, but again, some of the other charts need a lot more help to confirm any bullish breakout.

DWCPF (S-fund) is one of those charts that needs help. We may need to get more confirmation from the banking sector before this breaks out, but it is actually close. It may not be easy in a downtrend but a move back above 1660 to 1700 would be a huge lift for the small caps. That's easier said than done when looking at these bearish formations.

The EFA (I-fund) continues to hang around the recent highs when it really has had opportunities to go back and fill in some of those gaps. Instead the dip buyers have remained resilient and quick to react.

BND (Bonds / F-fund) pulled back for a 4th straight day as the flag-like consolidation continued. Today could be a big day for bonds, depending on the outcome of CPI report.

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

Tom Crowley

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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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