TSP Talk Blog

A positive open on Friday turned negative by the close for the stock market, so the winning streak for the indices stopped at two, but it was quite a two day period as we finally saw the S&P 500 move to new highs for the year. A little retracing of a big rally is common, but the bulls really want to see some dip buying before any pullback gets serious during this pre-holiday week. The charts look good. The news / story doesn't. Who's got it right?

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Depending on where you get your information, you may have a completely different outlook on stocks than someone else who gets their info from a different source or medium. When I listen to financial news it makes me want to sell everything and hide in a bunker. High interest rates, recession, inflation, bank failures, debt default, etc., sounds like trouble almost no matter how you look at it.

However, not all of the charts are telling this story. The Dow Transportation Index, banks, and the small caps are all struggling in bearish formations and that could be troublesome, but if we look at the Dow, S&P 500, and Nasdaq, we see some very good looking chart formations that historically led to higher prices.

The Dow, S&P 500, and Nasdaq are of course led by a small group of big tech stocks which may be carrying these indices, but if you own any C-fund shares you get those gains regardless of who is leading the charge. Apple, Google, Meta, Amazon, etc., are flying high this year and the big three indices are going along for the ride. We've heard this before - as goes Apple, so goes the market.




The S&P 500 finally busted through the February 2023 highs on both an intraday, and closing basis last week. Friday's dip was not unusual as you can see many 2-3 day rallies are followed by some profit taking. The difference since the March lows is that we are seeing a series of higher lows as opposed to those two-day rallies giving back more than they gained during that February to mid-March decline. With the breakout above the February highs, the bulls would prefer that the old resistance line holds as support, but there's some wiggle room given the stabilization of the April - May consolidation leading up to the breakout.




This weekly chart of the S&P looks equally impressive although technically there is wiggle room for this to fall below 4000 and remain in the recent uptrend off the October lows. But this has really been churning sideways since early 2021 as it hits levels we saw earlier this year, several times in 2022, and all the way back to May of 2021, so this market has been consolidating for two years. You can see that 4200 is a key level that the bears have been expecting to hold.




The Nasdaq 100 looks even better. This is a monthly chart going back more than 20 years. Fundamentally there are many who believe the tech stocks are grossly overvalued, and they could be right, but there's not a whole lot wrong with this chart technically. I noticed that the MACD Histogram, basically a measure of trend, is very close to moving back above the -0- line after a long period below it. When you look back at other crossovers into positive territory, it led to pretty good things. Will that happen again? Who knows? But the tendencies are there.




I have to continue to mention these two charts since they are considered market leaders, and as of now they are leading on the down side. The Transportation Index and the small caps are showing signs of life lately but they are still buried under some tough resistance. The bull flag on the Transports may be the first test and it could be resolved as soon as this week.



The small caps of the Russell 2000 have broken above their longer-term resistance line, but on Friday it failed to hold above the 50-day EMA after one day above it. It is also below the 200-day EMA and the red resistance line.

The rest of May has a better seasonal record than the prior couple of weeks that we just went through.


The Holiday could give us some pre/post reversals from the trend, which makes for tricky trading, and over the last 11 years there is a slight bullish bias, and today (day # -5) actually has the best record.

So the set up for [some] stocks doesn't looks bad. Of course that could change in a hurry if support or normally bullish chart formations fail, but until then we may need to keep an open mind and maybe turning the sound off on those rating and profit driven financial news shows will help us stay focused on what is happening, rather than what people think will happen.

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We dissected the S&P 500 (C-fund) chart a bit up above but this shows the breakout, the old resistance that could try to act as support now, the rising support line off the March lows, all of this coming out of a long 7-week consolidation, and that consolidation is part of the right shoulder of an even bigger consolidation formation called an inverted head and shoulders pattern. The PMO just crossed back above its moving average. This can all change quickly, but right now this looks pretty good.




The DWCPF (S-fund) has been moving sideways for several weeks. Unfortunately that has been forming a bearish looking flag, but it did break some descending reliance in recent weeks and last week it attempted another move above its 50-day EMA. Will this be the week it breaks out or will those pesky regional banks keep it in its funk?




The EFA (I-fund) bounced back on Friday after lagging for a few days but the dollar pulled back some and it helped push the I-fund back into the leader role on the day. The dollar is in an uptrend and that could be a problem, and could be what to watch this week.




BND (Bonds / F-fund) broke down last week as yields moved higher. There's a large open gap down by 71.60, but the second chart below shows some long term support off from the prior lows coming into the picture.




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

Tom Crowley



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