Stocks continued their winning ways on Friday as it appears the Dow, up another 142-points on the day, is determined to hit the emotional 20,000 level, and is only 244-points away, after passing 19,000 less than 3 weeks ago. Small caps were actually down slightly on the day and the I-fund picked up a small gain.
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This week it is widely expected that the Fed will raise interest rates for the second time in the last 10 years. The last one came a year ago and the market didn't react very well, but the economy has shown more signs of life since then. After a big rally in the stock market over the last month, will the rate hike trigger some profit taking or is the Trump rally just getting started?
Whenever the market has an emotional run like this, either up or down, those newer to the market timing game start to question their approach. Even some experienced investors will rethink things. It's not uncommon for someone who has missed a rally like this to consider becoming a buy and holder out of frustration. But you have to put things in perspective.
This is a 30-year chart of the S&P 500 and I've circled the recent rally in red. Can you see it? Now look at the bear markets that can wipe out 40%, 50%, or in the case of the Nasdaq in 2000-2002, over 70% of its value.
And after a dramatic bear market some may say that they are no longer risking their money in the stock market and will stick with fixed income or getting minimal interest with no chance of loss - something you might have heard before from some of our older relatives who lived through the Great Depression.
The point is, stick with your plan. And if you have been smart enough, or lucky enough, to catch this rally and pad your account nicely, don't get too greedy. Things don't go straight up like this forever. Taking some off the table wouldn't be a bad idea.
The SPY (S&P 500 / C-fund) was up again on Friday and in just 4+ weeks it has gone from the bottom of its large trading channel, to nearly testing the top. If the Dow is going to hit 20,000, then I suspect the SPY may be looking to test that resistance line. From there it doesn't necessarily have to go down. It could ride along the bottom of the rising resistance line as it did in July and August. But either way, there's no way that the momentum can keep up its current pace.
The DWCPF (S-fund) paused on Friday after hitting a double dose of resistance, although both of those resistance lines are rising.
The EFA (I-fund) has been lagging badly all year, but has enjoyed a good run in December.
The Dow, S&P 500 and Nasdaq all have 5-day winning streaks going. The last time that happened was in 2011 where it happened twice: Once in September and before that in July. Those gains were given back eventually in both cases.
The AGG (bonds / F-fund) has had a difficult time trying to bounce from its oversold levels. It has stabilized a bit but no sign of buying as the interest rate hike is likely 2 days away. Will that rate hike hurt bonds more since bond prices go down when yields go up, or will be see a "buy the news" reaction after months of selling the rumor?
Read more in today's TSP Talk Plus Report. We post more charts, indicators and analysis, plus discuss the allocations of the TSP and ETF Systems. For more information on how to gain access and a list of the benefits of being a subscriber, please go to: www.tsptalk.com/plus.php
Thanks for reading. We'll see you back here tomorrow.
Tom Crowley
Posted daily at www.tsptalk.com/comments.php
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