Stocks were mostly higher on Friday, although mixed again - something that has been happening with regularity lately with the price of oil declining which holds back the Dow and S&P. The Dow lost 24-points but as you see below, the broader indices were up as the S&P 500, the small caps, and especially the I-fund saw varying degrees of gains.
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The month of July ended with solid gains in all of the stock funds, and even bonds were positive. The S-fund led the way with gain of 5.4% and the big day on Friday for the I-fund pushed it to #2 with an impressive 5.07% gain.
The reason for the out performance in the I-fund on Friday was because of a sharp decline in the dollar which was triggered by a much worse GDP report than expected. The expected economic growth in the 2nd quarter was 2.6% but it came in at 1.2%.
That weakness in the dollar also helped oil reverse upward on Friday, while gold and other commodities also rallied.
After the Brexit vote the dollar ran up to some long-term resistance and has since backed down, and Friday's sharp losses in the dollar, caused by the GDP number, are shaking things up.
The SPY (S&P 500 / C-Fund) traded to new highs on Friday but closed within the long basing pattern that resembles a bull flag. This thing could break either way, but the bull flag gives us reason to believe it may be to the upside. The consolidation has helped but some indicators are still quite stretched to the upside so we don't know how the market will react to an upside breakout. It could turn into a fake-out. But there still seems to be many that are underinvested since the explosion off the Brexit lows, and so far any dip has been met with buyers because it sometimes it feels as bad not making money when stocks are going up, as losing money when stocks are going down.
The weekly chart of the S&P 500 shows the this summer's successful breakout from the large inverted head and shoulders pattern. This particular H&S has an initial upside target of just north of 2200, but that doesn't necessarily mean a pullback to test the neckline again won't occur at some point.
The DWCPF (S-fund) has been moving slowly higher, something we have been referring to as an "F" flag, which is technically different that a bull flag and has some negative connotations in that F flags tend to break down eventually. The problem is, how long 'eventually' is can make a big difference. These trading channels can go on for quite some time.
The Dow Transportation Index looks more like a bull flag and that support where the bottom of the flag meets the 50 and 200-day EMA should provide decent support.
The EFA (I-fund) broke out of its flag pattern last week and on Friday it filled a gap (blue) that has been opened after the Brexit vote. Another small gap (red) was opened on Friday and they tend to get filled quickly (although the I-fund is a little different), but right now this chart is greatly improved.
The price of oil was down early but rallied back with the help of the strong decline in the dollar on Friday. This chart does not look good for oil but a move back to test old failed support looks probable. I don't know where it's heading but for the economy's sake a price of $40 - $50 may be just right and if it were to chop in that area for a while stocks should not be too negatively impacted. Anything less than $40 may be a warning sign.
The price of gold rallied on the weakness in the dollar but for those who follow gold, it is now testing a very long-term resistance line so this is an interesting juncture for the yellow metal.
The AGG (Bonds / F-fund) rallied out of a bear flag, which is unusual, but that 1.2% GDP number sent a message to the bond traders that rates may not be going up any time soon, and that may be a catalyst to keep bond prices from falling too much, if at all in the next few months. But that could change with the next economic report.
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
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