TSP Talk Blog

The stock market chopped around quite a bit on Friday morning but by the afternoon the bulls had taken control and the indices closed firmly in positive territory, keeping the hopes of a market bottom alive. For the week the TSP stocks funds were surprisingly very flat, but obviously it took a lot of volatility to get there. Whether we have seen a market low is still debatable, but there has certainly been an effort by the bulls to shake off the economic concerns and move back toward bull market activity. We'll take a look at some charts and see if they have a case.

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I'm finally back in the office and I probably picked the worst week in many years to take a vacation. The volatility (VIX) was the highest since the COVID crash, and before that the financial crisis. That week in the fall of 2008 I went to New York for a wedding. In August 2015 the VIX jumped over 50 and yes, I went to Denver to see a couple of Colorado Rockies games that week. Although I do spend my winters in a condo in warmer weather down south, much to my wife's chagrin, I'm not a big fan of traveling so I don't do it very often, so next time I will have to warn you all in advance when I am leaving town so you'll know it's time to sell.

But if the VIX (Volatility Index) levels in those years, 2008, 2015, and now 2024, are any indication, then maybe the volatility has maxed out, but has the market bottomed? Historically, it's a close call. It seems there was at least a little more downside once those levels were hit in those prior years, but it's an interesting comparison of the sizes of those prior declines in the S&P 500 when the VIX spikes above 50, compared to the recent correction which is just a blip on the long-term S&P chart.



Whether it's the "Yen carry trade"...

According to CNBC: "Carry trades refer to operations wherein an investor borrows in a currency with low interest rates, such as the Japanese yen, and reinvests the proceeds in higher-yielding assets elsewhere. The trading strategy has been hugely popular in recent years."
“You can’t unwind the biggest carry trade the world has ever seen without breaking a few heads. That is the impression markets give us this morning,”

Or signs of an economic slowdown due to the most recent jobs report, or some combination of both, something surely happened in the last few weeks.

We saw the 10-year Treasury yield fall meaningfully below 4% for the first time in a while. It's trying to climb back toward 4% but there is some resistance near 4.1%.



... and that's an interesting juncture after it fell below a large descending trading channel and it looks like there is a case for another big move in either direction right now.

The dollar also fell sharply recently because of that jobs data and the Yen carry trade, and that produced mixed catalysts as a lower dollar generally helps prices of stocks and commodities, but the reason it fell was not particularly favorable to the stock market.




The market leaders are also at interesting pivot points. The Dow Transportation Index fell precipitously, and easily through its 200-day moving average during the first week in August, and here it is testing that average already on the way back up. It's been bumping up against that average for several days but hasn't been able to recapture it yet, and you can see that it has had some influence in the recent past.



The small caps of the Russell 2000 (not the S-fund, but somewhat similar) also fell hard earlier this month, but it found clear support at its 200-day moving average. There is some resistance above in the 209 - 210 area, but so far that 195 area has proven to be a wall of support.

We will get a ton of economic data this coming week highlighted by the PPI on Tuesday, and the CPI report on Wednesday. Not that inflation is the problem anymore, so these may not be the market movers. Instead it's those weekly jobless claims numbers that seems to be what everyone wants to see, and they come out again on Thursday.

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The S&P 500 (C-fund) improved greatly after a rough start last week, but there is more work to do. Open gaps and moving averages could be an upside target, if it can get past some more imminent resistance near where it closed on Friday. Trading volume has dried up on the rebound, which isn't a huge problem but the 4 billion shares traded at last week's lows may not be an all out capitulation style low. Not that it has to have a 5 or 6+ billion share day, but that would be a more definitive bottom.




The DWCPF (S-fund) lost, then regained its 200-day moving average on Monday of last week, and it spent the rest of the week hanging onto that support. It closed near the highs of the week but also near some potential resistance, so we should know rather quickly if the bulls have any more ammunition to fight this week. The open gap above near 2080 is a potential upside target, but that resistance in the 2020 area will have to be dealt with first.




The EFA (I-fund) also had a wild ride last week, and the volatility in the dollar caused by that Yen carry trade made it more vulnerable to wide swings. Still, it managed to close the week with a 0.28% gain to lead the TSP funds. Big overhead gaps are calling, but resistance is still pervasive.




BND (F-fund) pulled back sharply last week, but rebounded on Friday, breaking through resistance and perhaps starting a new uptrend. We all know that interest rates are coming down soon but much of that has been baked into the price of bonds already. Now the movement is all data driven with the battle being between whether the economy is weakening or not.




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

Tom Crowley


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