Stocks bottomed and rebounded strongly this week after the Fed assured investors that interest rates are not going up any time soon. All of the losses in the first half of December were erased in just three days in most indices. Now the market heads into the strongest seasonal period of the year. Will stocks take a breather after the massive rally last week, or will they continue on to new highs?
Here are the weekly, monthly, and annual TSP fund returns for the week ending December 19:
It took just 3-days for the right shoulder (RS) in its inverted head and shoulders pattern on the SPY (S&P 500 / C-fund), to go from the bottom back up to the neckline. That leaves us with this question...
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
Of the two more common outcomes of inverted head and shoulders patterns, which is more likely? With the Right Shoulder basically completed, we could see a breakout, like the first example, or we could see a pullback where the middle of the head gets tested, and if you look at the chart above, there are two open gaps (red boxes) that may need to get filled and will get filled on a head test.
The inverted head and shoulders pattern on the Wilshire 4500 (S-fund) completed its right shoulder, and what took abut a month to go down, took 3-days to recover. The left shoulder took about a month to recover back in August so I'm not sure what to make of a 3-day right shoulder.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
The EFA (EAFE Index / I-fund) has also rallied off the lows and may be trying to create a right shoulder in a sharply descending inverted head and shoulders pattern. The I-fund is in a bear market so the results may not be as favorable as the more bullish C and S fund charts.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
The AGG (Bonds / F-fund) broke above its apex in the pennant formation (red), but it turned out to be a fake out so far, something that is not uncommon with these formations. There are two resistance areas for the AGG that must be recaptured or this chart will break down.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
Good luck and thanks for reading! We will be back here next week with another TSP Wrap Up. You can read our daily market commentary at TSP Talk Market Commentary. If you need more help deciding what to do with your account, perhaps one of our premium services can help.
Tom Crowley
www.tsptalk.com
Weekly Wrap-Ups Archive
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