As if on queue, stocks rallied on Friday entering the second half of August (trading day #10) where the month's seasonality turns much more positive. The Dow gained 69-points as U.S. stocks saw gains across the board, while the I-fund slipped on a strong dollar and weakness overseas.
[TABLE="align: center"]
[TR]
[TD="align: center"]
[TD="align: center"][/TD]
[TD="align: center"] Daily TSP Funds Return
[TR]
[TD="align: right"] [/TD]
[/TR]
[/TABLE]
[/TD]
[/TR]
[/TABLE]
Small caps led the way and bonds were off slightly.
The SPY (S&P 500 / C-fund) had the big turnaround day on Wednesday on high volume last week, and those kind of days tend to produce at least short-term market bottoms. If you look on a longer-term chart you will see them over and over again in a bull market. The question we have been thrown is whether this bull market is going to continue.
We've seen the market leading Transportation Index fall into a bear market this year, and small caps are not faring that much better, so there are some concerns that another push to new highs, which we have seen for a long time now, may not be a given. The bulls are hoping the inverted head and shoulders pattern plays out in which case we probably will see a test of the recent highs, but that red descending resistance line could get in the way as it has done on a few other indices already.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
The weekly chart of the S&P 500 shows that the 50-week moving averages was tested successfully yet again last week. That is good news but you can see that the S&P has been rather flat since the rebound in February. It's either in a long consideration, or a possible rounded top is forming.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
This year is a pre-presidential election year, and while it hasn't been a typical strong pre-election year - the strongest of the 4-year cycle, we are seeing gains in the major indices as we get deeper into the latter half of the year.
Source: Equity Clock » S&P 500 Index Four-year Election Cycle Seasonal Charts
The Dow Completion Index (S-fund) was able to climb back above the important 200-day EMA. It has closed below it three times since late July, but each time it was able to move back above it quickly. It remains in a downtrend and below the 50-day EMA and now it becomes important for the big reversal day to mark a low, or this index may break down on us like the transportation Index did last spring.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
The Transportation Index is also trying to form a bottom as it made a possible second higher low last week, and of course the low last week came in the form of the high volume reversal day. It remains below the 50 and 200-day EMA's and remains in a bear market so expecting a big rally here is still just hope. It could happen, but it must make some big technical breakthroughs first.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
The EFA (EAFE index / I-fund) has been a bit of a mess lately with gaps all over this chart, falling below the 50 and 200-day EMAs, and now forming a bear flag. I see some hope in the form of an inverted head and shoulders pattern, but this chart could use some help.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
The AGG (bonds / F-fund) was down slightly on Friday as stocks rallied. It may be looking for some support at the bottom of a rising trading channel - about where the 20 and 50-day EMAs are coming into the picture. A breakdown would be an interesting development.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
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.
