TSP Talk Blog

Strength in large caps and weakness in small caps (Russell 2000) reversed a recent trend, so rather than broad strength, we are still seeing selective strength. The Dow gained 169-points and we saw solid gains in the S&P and especially the Nasdaq, both of which have been flirting with new 2023 highs. Meanwhile there were more stocks down on the NYSE than up yesterday. One day doesn't change a trend, but the fact that they all can't go up together may be telling us something.

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Weaker than expected jobless claims data pushed yields lower and bond prices higher, and I suppose investors saw this as positive on the inflation front as we get closer to next week's FOMC meeting and the Fed's decision on interest rates.




The Fed balance sheet actually went up $10 billion last week,after 10 straight weekly reductions. That has helped push the dollar lower this week after the big rally in May when the Fed was reducing their balance sheet.




As always, a weak dollar is a breeze at the back of the EFA (I-fund) and we saw that yesterday with the 1% gain in international stocks. The I-fund found firm support at the 50-day EMA recently as it digests the recent rally that started on June 1. The open gaps above and below makes for potential choppy action, and looking forward it may all rest on whether the Fed reduces or increases their balance sheet in the coming weeks.




The CPI and PPI reports will come out next Tuesday and Wednesday respectively, and that data will certainly be on the Fed's radar as they debate what's next for interest rates. The Fed decision on rates will be out on Wednesday afternoon of next week. Between now and the release of the CPI on Tuesday it could just be mostly quiet noise barring any major market moving headlines, as investors may be getting too comfortable as we see the VIX (Volatility Index) dropping like a rock over the last few weeks.

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The S&P 500 (C-fund) has been moving sideways for the last four days and that has created two possible formations on the chart, each of which tend to result in different outcomes. The "flat top" near 4300 often precedes a decline, but we can't rule out that it is a bullish flag (blue), and they tend to break to the upside. The old resistance line near 4275 has been holding as support since the breakout on June 2nd.




The DWCPF (S-fund) lagged a bit yesterday so it did get a small loss off of Wednesday's negative reversal, but it closed well off the lows creating a possible positive reversal day. The short-term overbought conditions may have led to some profit taking but it looks like the underinvested are doing some dip buying to keep this from rolling over. A pullback to 1700 - 1680 wouldn't be a bad thing here, but if it gets under 1675 it would be a red flag.




BND (Bonds / F-fund) bounced back on the weak jobs data yesterday. It is still looking bearish here while trading below the 50 and 200-day EMAs, while the 200-day simple average (orange) continues to hold as support. But if you'll notice, all three of those averages are slowly moving lower, which is indicative of bearish bond market activity.




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Thanks so much for reading. Have a great weekend!

Tom Crowley




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