The gains were large and broad yesterday, and anyone who was playing it cautiously leading into the election either had to chase the runaway market, or sit on the dock and watch the ship pull away. The indices opened large gaps underneath yesterday's close, but while gaps tend to eventually get filled - and sooner rather than later in many cases, gaps that are opened by a major shift in monetary or economic policy tend to stay open longer than most can stay can stay patient.
The 2.5%, 3%, and 3.5% daily gains in the indices yesterday is a rare event, but even more rare is a 5.8% gain in the Russell 2000, and the 5.4% gain in the Dow Transportation Index. Or, how about a 13.4% gain in the Regional Banks Index? The S-fund has a lot of those regional banks in it, helping the fund with its 4.7% gain yesterday.
The Dow Transportation Index did make an all time high yesterday with its 5.4% gain, so the Dow Theorists must be feeling pretty good about the stock market for the intermediate and longer term.
According to Investopedia.com:
"What Is the Dow Theory? The Dow Theory is a financial theory that says the market is in an upward trend if one of its averages (e.g., industrials or transportation) advances above a previous important high and is accompanied or followed by a similar advance in another average. For example, if the Dow Jones Industrial Average (DJIA) climbs to an intermediate high, an investor might watch the Dow Jones Transportation Average (DJTA) climb to confirm an upward trend."
Love Trump, or hate him, the stock market was glad to see a definitive result to the election, no matter who won, but adding Trump's policies of fewer regulations and lower taxes magnified the stock market's positive reaction. The stock market typically likes gridlock in Washington as they don't like a lot of changes, but the potential for a Republican sweep of the White House, the Senate, and the House, if not already official, gave Wall Street confirmation that those policies are a real possibility.
Of course a tariff war is also a possibility, but I suppose investors will deal with that when it's on the table.
The Federal Reserve FOMC meeting ends today and we will get their decision on interest rates and their policy statement typically at 2 PM ET. A 0.25% cut is all but guaranteed, although what they have to say about quantitative tightening could be a sore point. Keeping money flowing is key for stocks.
The 10-year Treasury Yield and the dollar shot up again as the expected pro-growth and lower taxes environment could bring higher yields. The stock market is OK with that if it means growth, especially with the Fed set to cut interest rates again today.
Did you see the I-fund yesterday? It did not like the action because the dollar (UUP) was up 1.62%, which directly weighs on those overseas market gains [in dollar.]
The TSP described the new I-fund benchmark as "MSCI ACWI IMI ex USA ex China ex Hong Kong Index" and I had assumed that meant we could use the ETF called ACWI to track the I-fund (because it was in the name), but thanks to our forum member Jackbnimble who pointed out that the new I-fund tracking index is likely ACWX, with the X standing for ACWI "X"cluding USA, China, and Hong Kong.
By comparison, here is the AWCI, which included the big gains in US stocks. Unfortunately those in the I-fund were in ACWX yesterday. See more on the I-fund down below.
So can this rally continue? I'd say yes. Many investors were on the sidelines waiting to see the results of the election first before making a move, and now those sitting in cash could be the fuel that keeps the rally going. It could still be volatile but because we are starting the historically strongest part of the year for stocks, dips may be bought quickly.
Monday is Veteran's Day and the TSP will be closed that day.
The S&P 500 (C-fund) was up big for a second day in a row and, after the pullback held at the support of the 50-day EMA, it is already flirting with the top of the bullish trading channel. The large gap opened in the process, and as I said above, these market changing events often leave the gaps open much longer. We have the Fed on deck today, so perhaps he will prove me wrong.
The DWCPF (S-fund) had a huge day - the best day in years. You can see below that a couple of major open gaps were filled (blue) in the following weeks, but there are two other old gaps still open (red.) The channel is moving higher but it is nearing the top of the channel. It doesn't have to come down if it hits that resistance, but it could give us an idea of any angle of incline heading into the end of the year.
According to the TSP.gov website, "The transition of the I Fund benchmark to the MSCI All Country World Investable Market Index ex USA ex China ex Hong Kong Index (MSCI ACWI IMI ex USA ex China ex Hong Kong Index) is complete."
I had it wrong. It's not the ACWI, but rather the ACWX ETF, which excludes the USA, China, and Hong Kong markets. I posted the ACWX chart in the top section.
Yesterday ACWX actually lost 1.24% because of the large gain in the US dollar yesterday. Let's see if this theory stands up when the TSP posts the I-fund's price and return on Wednesday evening. You can see that update by about 9:15 PM ET here: https://www.tsptalk.com/tsp_share_prices.php
BND (Bonds / F-fund) fell sharply yesterday as the Trump victory led to higher yields and the selling of the safer trades, bonds and gold, to buy stocks. The support from that open gap gave out and suddenly the 200-day EMA is in the picture.
Thanks so much for reading! We'll see you back here tomorrow.
Tom Crowley
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
Questions, comments, or issues with today's commentary? We can discuss it in the Forum.
Daily Market Commentary Archives
For more info our other premium services, please go here... www.tsptalk.com/premiums.html
To get weekly or daily notifications when we post new commentary, sign up HERE.
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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The 2.5%, 3%, and 3.5% daily gains in the indices yesterday is a rare event, but even more rare is a 5.8% gain in the Russell 2000, and the 5.4% gain in the Dow Transportation Index. Or, how about a 13.4% gain in the Regional Banks Index? The S-fund has a lot of those regional banks in it, helping the fund with its 4.7% gain yesterday.
The Dow Transportation Index did make an all time high yesterday with its 5.4% gain, so the Dow Theorists must be feeling pretty good about the stock market for the intermediate and longer term.
According to Investopedia.com:
"What Is the Dow Theory? The Dow Theory is a financial theory that says the market is in an upward trend if one of its averages (e.g., industrials or transportation) advances above a previous important high and is accompanied or followed by a similar advance in another average. For example, if the Dow Jones Industrial Average (DJIA) climbs to an intermediate high, an investor might watch the Dow Jones Transportation Average (DJTA) climb to confirm an upward trend."
Love Trump, or hate him, the stock market was glad to see a definitive result to the election, no matter who won, but adding Trump's policies of fewer regulations and lower taxes magnified the stock market's positive reaction. The stock market typically likes gridlock in Washington as they don't like a lot of changes, but the potential for a Republican sweep of the White House, the Senate, and the House, if not already official, gave Wall Street confirmation that those policies are a real possibility.
Of course a tariff war is also a possibility, but I suppose investors will deal with that when it's on the table.
The Federal Reserve FOMC meeting ends today and we will get their decision on interest rates and their policy statement typically at 2 PM ET. A 0.25% cut is all but guaranteed, although what they have to say about quantitative tightening could be a sore point. Keeping money flowing is key for stocks.
The 10-year Treasury Yield and the dollar shot up again as the expected pro-growth and lower taxes environment could bring higher yields. The stock market is OK with that if it means growth, especially with the Fed set to cut interest rates again today.
Did you see the I-fund yesterday? It did not like the action because the dollar (UUP) was up 1.62%, which directly weighs on those overseas market gains [in dollar.]
The TSP described the new I-fund benchmark as "MSCI ACWI IMI ex USA ex China ex Hong Kong Index" and I had assumed that meant we could use the ETF called ACWI to track the I-fund (because it was in the name), but thanks to our forum member Jackbnimble who pointed out that the new I-fund tracking index is likely ACWX, with the X standing for ACWI "X"cluding USA, China, and Hong Kong.
By comparison, here is the AWCI, which included the big gains in US stocks. Unfortunately those in the I-fund were in ACWX yesterday. See more on the I-fund down below.
So can this rally continue? I'd say yes. Many investors were on the sidelines waiting to see the results of the election first before making a move, and now those sitting in cash could be the fuel that keeps the rally going. It could still be volatile but because we are starting the historically strongest part of the year for stocks, dips may be bought quickly.
Monday is Veteran's Day and the TSP will be closed that day.
The S&P 500 (C-fund) was up big for a second day in a row and, after the pullback held at the support of the 50-day EMA, it is already flirting with the top of the bullish trading channel. The large gap opened in the process, and as I said above, these market changing events often leave the gaps open much longer. We have the Fed on deck today, so perhaps he will prove me wrong.
The DWCPF (S-fund) had a huge day - the best day in years. You can see below that a couple of major open gaps were filled (blue) in the following weeks, but there are two other old gaps still open (red.) The channel is moving higher but it is nearing the top of the channel. It doesn't have to come down if it hits that resistance, but it could give us an idea of any angle of incline heading into the end of the year.
According to the TSP.gov website, "The transition of the I Fund benchmark to the MSCI All Country World Investable Market Index ex USA ex China ex Hong Kong Index (MSCI ACWI IMI ex USA ex China ex Hong Kong Index) is complete."
I had it wrong. It's not the ACWI, but rather the ACWX ETF, which excludes the USA, China, and Hong Kong markets. I posted the ACWX chart in the top section.
Yesterday ACWX actually lost 1.24% because of the large gain in the US dollar yesterday. Let's see if this theory stands up when the TSP posts the I-fund's price and return on Wednesday evening. You can see that update by about 9:15 PM ET here: https://www.tsptalk.com/tsp_share_prices.php
BND (Bonds / F-fund) fell sharply yesterday as the Trump victory led to higher yields and the selling of the safer trades, bonds and gold, to buy stocks. The support from that open gap gave out and suddenly the 200-day EMA is in the picture.
Thanks so much for reading! We'll see you back here tomorrow.
Tom Crowley
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
Questions, comments, or issues with today's commentary? We can discuss it in the Forum.
Daily Market Commentary Archives
For more info our other premium services, please go here... www.tsptalk.com/premiums.html
To get weekly or daily notifications when we post new commentary, sign up HERE.
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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