05/22/25
It was day #2 of the pullback, with yesterday being a little more severe than Tuesday's dip. Yields rose sharply after a weak 20-year bond auction, and now the 10-Year Treasury Yield is getting to a level that has the stock market concerned. Small caps were hit hard while the falling dollar helped the I-fund lead the US funds with just a modest loss. We'll take a look at some prior Memorial Day weeks and determine if this is a buyable dip, or the start of something more serious.
We came into this week expecting a possible disruption to the rally as pre-holiday reversals are quite common. So far that's all it has been as we take a look at the S&P 500 (C-fund), which remains in an uptrend, but we spent the last couple of days deciding what might be acceptable pullback targets. There's plenty of support below and until this falls to the 50-day EMA or the bottom of that red open gap, both near 5650, I'm expecting the bulls to jump back in some time next week, or as history suggests, in early June.
More on the holiday play below but for now let's look at the 10-year Treasury Yield which closed at 4.6% yesterday, the highest close since early February. While that is higher than many are comfortable with, it has crossed that level many times in the last six months. But as I often say, it's not always the level that is concerning; it's the speed of the direction that it is moving, and in this case moving quickly higher and opening some eyes after a weak 20-year bond auction yesterday.
You can see that the S&P 500 didn't collapse every time the 10-year hit 4.6%, but it may be enough to kill a rally for a while, and that is perfect timing for a pre-holiday reversal.
I've been talking about those pre-holiday reversals with the prominent trend resuming after the holiday, but post Memorial Day weeks have had some issues in the past as well. Last year stocks were moving up nicely until the pre-holiday week where we had a negative outside reversal day that led to a pullback that bottomed on the final trading day in May. The red dashed line is the holiday before and after the weekend so we can see that the pullback went into the post holiday week as well. Then the market took off in June.
The year before in 2023, volatility did spike during the pre-Memorial day weekend and the Friday before was actually very good, but some selling on the final day in May gave back a lot of those gains before a June rally began.
This year we had a strong rally coming into this week, but right on cue, the last two days have been shaky. We still have two more trading days left this week and four next week, so six total left in May. I doubt they will all be down, but the charts have some open gaps below and moving averages below that a pullback might help clean up.
The pullback was not a shock but the size of the losses yesterday may have taken some bulls, especially the late comers, by surprise. It's typical action this time of year and it will take a lot worse to get me concerned.
The dollar continues to prove me wrong and while that inverted head and shoulders bottoming formation is still intact theoretically, I think I have the fundamentals wrong on this. I won't go too into the weeds, but global liquidity was on the rise in the 4th quarter of 2024. There is usually a 10 to 12 week lag before the stock market reacts positively to a move like that. I believe that is what is helping the US stocks to rally in this 2nd quarter of 2025, even though the liquidity came down in the 1st quarter -- because of the lag. But I expected the dollar to rebound with stocks in this quarter, and while the lows are still in technically, it's not exactly bouncing like I had thought. 27.25 on the UUP looks like critical support.
I know that's boring stuff, but I have been calling for a low in the dollar for a while now, which impacted my outlook on the I-fund, and I wanted to address it.
Holiday Closing: From tsp.gov, "Some financial markets will be closed on Monday, May 26, in observance of Memorial Day. The Thrift Savings Plan will also be closed. Transactions that would have been processed Monday night (May 26) will be processed Tuesday night (May 27) at Tuesday's closing share prices."
The DWCPF (S-fund) fell sharply, as small caps tend to do when the market is down. But look where it landed yesterday -- right on the 130-day and 200-day EMA's, as well as the bottom of the rising channel. The 50-day EMA is at 2100, which is also the bottom of an open gap. There are other open gaps below, and since small caps tend to move more than we think they should, up or down, filling in that next open gap near 2080 would also be possible, although a little concerning since it would be below a lot of the heavier support.
ACWX (I-fund) was down modestly thanks to another decline in the dollar, but this did make a negative outside reversal day pattern suggesting more downside is coming. That wouldn't be shocking considering how far above support this has gotten. See above about the dollar's role here. Maybe the outside reversal day will lead to a peak and another rally in the dollar, but if not, I think I just had that call wrong.
BND (bonds / F-fund) was hit hard as it fell below that red box range again, but look at that 200-day average trying to hold it up again. It hasn't closed below that average since January, and it tested it a few times.
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.
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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 may use additional methods and strategies to determine fund positions.
It was day #2 of the pullback, with yesterday being a little more severe than Tuesday's dip. Yields rose sharply after a weak 20-year bond auction, and now the 10-Year Treasury Yield is getting to a level that has the stock market concerned. Small caps were hit hard while the falling dollar helped the I-fund lead the US funds with just a modest loss. We'll take a look at some prior Memorial Day weeks and determine if this is a buyable dip, or the start of something more serious.
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We came into this week expecting a possible disruption to the rally as pre-holiday reversals are quite common. So far that's all it has been as we take a look at the S&P 500 (C-fund), which remains in an uptrend, but we spent the last couple of days deciding what might be acceptable pullback targets. There's plenty of support below and until this falls to the 50-day EMA or the bottom of that red open gap, both near 5650, I'm expecting the bulls to jump back in some time next week, or as history suggests, in early June.
More on the holiday play below but for now let's look at the 10-year Treasury Yield which closed at 4.6% yesterday, the highest close since early February. While that is higher than many are comfortable with, it has crossed that level many times in the last six months. But as I often say, it's not always the level that is concerning; it's the speed of the direction that it is moving, and in this case moving quickly higher and opening some eyes after a weak 20-year bond auction yesterday.
You can see that the S&P 500 didn't collapse every time the 10-year hit 4.6%, but it may be enough to kill a rally for a while, and that is perfect timing for a pre-holiday reversal.
I've been talking about those pre-holiday reversals with the prominent trend resuming after the holiday, but post Memorial Day weeks have had some issues in the past as well. Last year stocks were moving up nicely until the pre-holiday week where we had a negative outside reversal day that led to a pullback that bottomed on the final trading day in May. The red dashed line is the holiday before and after the weekend so we can see that the pullback went into the post holiday week as well. Then the market took off in June.
The year before in 2023, volatility did spike during the pre-Memorial day weekend and the Friday before was actually very good, but some selling on the final day in May gave back a lot of those gains before a June rally began.
This year we had a strong rally coming into this week, but right on cue, the last two days have been shaky. We still have two more trading days left this week and four next week, so six total left in May. I doubt they will all be down, but the charts have some open gaps below and moving averages below that a pullback might help clean up.
The pullback was not a shock but the size of the losses yesterday may have taken some bulls, especially the late comers, by surprise. It's typical action this time of year and it will take a lot worse to get me concerned.
The dollar continues to prove me wrong and while that inverted head and shoulders bottoming formation is still intact theoretically, I think I have the fundamentals wrong on this. I won't go too into the weeds, but global liquidity was on the rise in the 4th quarter of 2024. There is usually a 10 to 12 week lag before the stock market reacts positively to a move like that. I believe that is what is helping the US stocks to rally in this 2nd quarter of 2025, even though the liquidity came down in the 1st quarter -- because of the lag. But I expected the dollar to rebound with stocks in this quarter, and while the lows are still in technically, it's not exactly bouncing like I had thought. 27.25 on the UUP looks like critical support.
I know that's boring stuff, but I have been calling for a low in the dollar for a while now, which impacted my outlook on the I-fund, and I wanted to address it.
Holiday Closing: From tsp.gov, "Some financial markets will be closed on Monday, May 26, in observance of Memorial Day. The Thrift Savings Plan will also be closed. Transactions that would have been processed Monday night (May 26) will be processed Tuesday night (May 27) at Tuesday's closing share prices."
The DWCPF (S-fund) fell sharply, as small caps tend to do when the market is down. But look where it landed yesterday -- right on the 130-day and 200-day EMA's, as well as the bottom of the rising channel. The 50-day EMA is at 2100, which is also the bottom of an open gap. There are other open gaps below, and since small caps tend to move more than we think they should, up or down, filling in that next open gap near 2080 would also be possible, although a little concerning since it would be below a lot of the heavier support.
ACWX (I-fund) was down modestly thanks to another decline in the dollar, but this did make a negative outside reversal day pattern suggesting more downside is coming. That wouldn't be shocking considering how far above support this has gotten. See above about the dollar's role here. Maybe the outside reversal day will lead to a peak and another rally in the dollar, but if not, I think I just had that call wrong.
BND (bonds / F-fund) was hit hard as it fell below that red box range again, but look at that 200-day average trying to hold it up again. It hasn't closed below that average since January, and it tested it a few times.
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.php
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 may use additional methods and strategies to determine fund positions.
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