TSP Talk: Stocks rally on Friday to end a bad week

Stocks bounced back on Friday after a rough start to the week that was sprinkled with sketchy economic data. The Dow gained 658-points and the indices gained near 2% on the day, but for the week the TSP stock funds did lose 1% to 2% so that was a much needed rally for the bulls. Bonds were up on Friday and they also were up for the week, and the dollar had a rare down day.

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Better than expected retail sales plus strong earnings from Citigroup were some of the catalysts on Friday. Ironically the strong retail number could have been considered inflationary but the market didn't seem to mind. Also odd is that yields were down after the stronger than expected economic data - something you would think would send yields higher, but instead the 10-year Treasury yield is back below 3% after the early July rally. The 2-year Treasury yield is now 3.13% so we still have an inversion, and a recession is all but official at this point.

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The dollar took a breather from its recent spike higher, which had been putting pressure on stocks and commodities all month.

The price of oil was up on Friday and while we have enjoyed seeing gas prices slip lower in recent weeks, the chart of oil suggests support is holding near the 200-day average. We'll have to see if that overhead descending resistance can keep it from moving back above $100 a barrel.

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As goes Apple... The chart of Apple may be the tell for the rest of the market as it closed back above $150 after a strong move off the June lows and a break above the red descending resistance line, but now it is flirting with some stiff resistance near $152.

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These next S&P charts compare the 2008 bear market in July and August, with the current chart and we can see that even in that devastating year for stocks, the S&P 500 rallied for most of the mid-summer before peaking again at the end of August. August in one the worst months for stocks historically, but ironically in 2008 it was one of the few positive months that year.

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We've gotten past the jobs report and the CPI / PPI inflation reports so we have a bit of a void in economic data for a couple of weeks. The fact that we did not see lower lows in the indices after the recent poor inflationary data was released may be telling us that the selling is getting overdone for a minute. In the meantime earnings will start to come in more heavily this week but next week the market movers like Apple, Microsoft, and Amazon will start to report, and of course the Fed will be raising interest rates again on the 27th so maybe stocks will try to stabilize this week before next week's busy activity, as the charts above may be suggesting. The only question now, and what the market may debate over this week, is whether the Fed raises rates by 0.75% or 1.0%.




The S&P 500 (C-fund) gapped up on Friday morning and moved back into that bearish looking flag. There's a lot of resistance between 3875 and 3950 that will be a big test for the market this week, as it looks up toward the open gap which has now been open for more than a month. After those weak CPI and PPI reports we saw the bulls battle back from early selling and the June lows continue to hold. Unfortunately that is the type of action that creates a bear flag, which is still in the picture, but there is some room above before the chart hits the top of the flag.

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The weekly chart shows that bearish looking flag, similar to one that we saw earlier in the year that did lead to lower lows, but we also see the 200-week average holding and a falling wedge-like pattern with an upper resistance line on it that will get tested early this week.

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I sound like a broken record because everyday I continue to say that this chart looks very similar to the S&P 500 chart, so the analysis is very similar as well.

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EFA (I-fund) had a nice day and it finally got a break from the dollar as UUP fell sharply after hitting the upper resistance line. A move down to the bottom of that channel on UUP may help the I-fund with a late July rally.

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BND (Bonds / F-fund) closed a couple of cents above that 50-day EMA but there is a little more resistance on this chart. If it can get back to the early July highs, it may just keep going and fill that open gap near 76.60.

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

Tom Crowley




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