Stocks pulled back a bit on Tuesday with the Dow slipping 37-points but we saw more moderate losses in the S&P 500 and Nasdaq. Small caps and the I-fund also took hits but as we look at the charts we'll see that they just did a little cleaning up by filling Monday's open gaps. Now comes the test. [TABLE="align: center"]
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The House passed the Tax Bill on Tuesday evening, but because of a procedural issue, they will have to vote on it again. The Senate also has to make a final vote and while it may just be a technical interruption, the delay could impact the budget negotiations which has an imminent deadline.
The selling yesterday had the hint of a sell-the-news reaction but as we head into the strongest seasonal period of the year, the bears may have a bit of a headwind to take stocks down.
That said, it's been a big year for stocks and we really haven't seen much tax selling (selling for tax purposes as opposed to the tax bill). With 7 trading days left in the year, there is still the possibility of seeing some of that kind of action. The caveat to that is, investors may also wait until after the New Year to sell because tax rates could be lower for them in 2018.
The SPY (S&P 500 / C-fund) didn't take long to fill Monday's open gap and that means it was not another breakaway gap but it could instead be the exhaustion gap that we talked about yesterday. See yesterday's commentary for more on that. But, the bottom of a gap could act as support so today's action may be very telling.
The small caps / S-fund also filled its open gap and now has a small double top to deal with. It's basically in the middle of its current rising trading channel.
The Dow Transportation Index inched higher again bucking the trend of the other major indices. The F-flag remains in play. They tend to break down eventually, but can ride the flag up for quite a while sometimes before breaking down. I wouldn't be surprised to see 10,400 over the next week or so, to test the bottom of the flag.
The EAFE Index (I-fund) opened a big gap on Monday, filled it on Tuesday, but created yet another large gap in the process. There seems to be a rising wedge forming so watch the 70.75 and 69.75 areas for a breakout / breakdown.
The High Yield Corporate Bond Fund was down on the day and it is back below the 50-day EMA. The open gap below is trying to pull it down, but that could be some kind of bull flag forming as well. Interesting chart that could give clues to whether stocks will pullback or not.
The AGG (bonds / F-fund) was down sharply as yields continue to rise - not surprisingly.
The yield on the 10-year Treasury is nearing a breakout from a large cup and handle formation, and as we talked about before, if we start seeing yields near 3% (it's still under 2.5%) stocks may get cranky.
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
The legal stuff: This information is for educational purposes only! This is not advice or a recommendation. We do not give investment advice. Do not act on this data. Do not buy, sell or trade the funds mentioned herein based on this information. We may trade these funds differently than discussed above. We use additional methods and strategies to determine fund positions.
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[TD="align: center"] Daily TSP Funds Return
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[TD="align: right"][/TD]
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[/TABLE]
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[TD="align: center"]
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The House passed the Tax Bill on Tuesday evening, but because of a procedural issue, they will have to vote on it again. The Senate also has to make a final vote and while it may just be a technical interruption, the delay could impact the budget negotiations which has an imminent deadline.
The selling yesterday had the hint of a sell-the-news reaction but as we head into the strongest seasonal period of the year, the bears may have a bit of a headwind to take stocks down.
That said, it's been a big year for stocks and we really haven't seen much tax selling (selling for tax purposes as opposed to the tax bill). With 7 trading days left in the year, there is still the possibility of seeing some of that kind of action. The caveat to that is, investors may also wait until after the New Year to sell because tax rates could be lower for them in 2018.
The SPY (S&P 500 / C-fund) didn't take long to fill Monday's open gap and that means it was not another breakaway gap but it could instead be the exhaustion gap that we talked about yesterday. See yesterday's commentary for more on that. But, the bottom of a gap could act as support so today's action may be very telling.
The small caps / S-fund also filled its open gap and now has a small double top to deal with. It's basically in the middle of its current rising trading channel.
The Dow Transportation Index inched higher again bucking the trend of the other major indices. The F-flag remains in play. They tend to break down eventually, but can ride the flag up for quite a while sometimes before breaking down. I wouldn't be surprised to see 10,400 over the next week or so, to test the bottom of the flag.
The EAFE Index (I-fund) opened a big gap on Monday, filled it on Tuesday, but created yet another large gap in the process. There seems to be a rising wedge forming so watch the 70.75 and 69.75 areas for a breakout / breakdown.
The High Yield Corporate Bond Fund was down on the day and it is back below the 50-day EMA. The open gap below is trying to pull it down, but that could be some kind of bull flag forming as well. Interesting chart that could give clues to whether stocks will pullback or not.
The AGG (bonds / F-fund) was down sharply as yields continue to rise - not surprisingly.
The yield on the 10-year Treasury is nearing a breakout from a large cup and handle formation, and as we talked about before, if we start seeing yields near 3% (it's still under 2.5%) stocks may get cranky.
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
The legal stuff: This information is for educational purposes only! This is not advice or a recommendation. We do not give investment advice. Do not act on this data. Do not buy, sell or trade the funds mentioned herein based on this information. We may trade these funds differently than discussed above. We use additional methods and strategies to determine fund positions.
