Ugh!! I know I post this in three different areas on the website so hopefully most of you found it, but I forgot to finish posting it here in the forum. Old news at this point, but for the record, here's Monday's commentary....
The PCE Prices inflation data apparently came in a little hot, but you would have never known it by the reaction of the bond market where yields fell sharply lower (bond prices went higher.) So the question is if the bond market was rallying because it was not concerned with the inflation data, was it from economic weakness in the spending data, or was it actually rallying as a safe haven while stocks were selling off? Whatever way we slice it, both the stock and bond markets were in flag patterns - one a bull flag and one a bear flag.
The economic data did show PCE Prices, and Core either inline or slightly higher than expected, but Personal Income was up from last month and above estimates, and Personal Spending was above last month's but well below estimates, so it wasn't so much inflationary, but a possible sign of an economic slowdown.
Source: Briefing.com
That would would send yields lower with bonds and the F-fund prices moving higher as we see in the $TNX (10-year yield) and BND (F-fund) charts.
The S&P 500 (C-fund) was looking promising for a couple of weeks as a "V" bottom was certainly a possibility until Friday. Instead, the it turned out to be more of a bear flag, although quite steep, making for some confusion or uncertainty which way it would break. Now the best case scenario might be a double bottom test near 5500.
Let's look at some other recent major bear flags on the S&P 500 going back to 2018.
The one in August of 2024 (top left) was a clear bear flag and I don't recall what I was saying back then, but I'm sure I was very worried about that flag breaking down, but it never did. In early 2022 (top right) there were several bear flag-like formations, and being that it turned out to be a bear market, seeing them all break down made sense.
In 2020 (bottom left) there was a bear flag in late February and into early March that broke down and it led to a sharp decline. And in 2018 there was a bear flag breakdown in October, and in the process it created an even larger bear flag that broke down in December.
Obviously not all patterns are 100% accurate or predictive, but the current breakdown is an attention grabber. The question is, is it too late to turn bearish, or is there another leg lower coming for the stock market?
The weekly chart shows a less than optimistic negative outside reversal candlestick as it traded above and below the prior week's range, closing below the prior week's low.
Here's a closer look at that negative outside reversal, which also pushed it below its 50-week moving average again.
Could it stabilize in the area? Of course. Nothing works 100% of the time, but for now the technical analysis just got a lot more bearish.
The Federal Reserve is now expected to cut interest rates multiple times this year. There's only about a 20% chance of a cut that their next meeting in May, but right now the chances of a cut by the end of the year are 91%, with now 4 or 5 cuts being priced in much more meaningfully. For example, the chances of seeing four 0.25% cuts this year (or a 1% cut in total, depending on how they spread it out) is more than 90%.
Can this stimulate a rally, just knowing what could happen to rates in these final 9 months of the year?
This week we'll get the Chicago PMI report as well as manufacturing data, but the highlight of the week will be the March Jobs Report which comes out on Friday morning.
The DWCPF (S-fund) also broke down from what was looking like a very promising "V" bottom, but now we see either a breakdown from a bear flag, or at best a test of the prior lows coming. It's below all of the major moving averages, and the relief rally just ran out of gas trying to get back above them.
The ACWX (I-fund) is still holding up relatively well, and there is some potential support at the 50-day EMA and the bottom of that open gap. Then the 55 area has been holding well. The trend is still up but this too may become vulnerable. If the dollar keeps falling, this may still outperform the US TSP funds, but that doesn't necessarily mean it will be going up. It could just go down less.
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
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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.
The PCE Prices inflation data apparently came in a little hot, but you would have never known it by the reaction of the bond market where yields fell sharply lower (bond prices went higher.) So the question is if the bond market was rallying because it was not concerned with the inflation data, was it from economic weakness in the spending data, or was it actually rallying as a safe haven while stocks were selling off? Whatever way we slice it, both the stock and bond markets were in flag patterns - one a bull flag and one a bear flag.
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The economic data did show PCE Prices, and Core either inline or slightly higher than expected, but Personal Income was up from last month and above estimates, and Personal Spending was above last month's but well below estimates, so it wasn't so much inflationary, but a possible sign of an economic slowdown.
Source: Briefing.com
That would would send yields lower with bonds and the F-fund prices moving higher as we see in the $TNX (10-year yield) and BND (F-fund) charts.
The S&P 500 (C-fund) was looking promising for a couple of weeks as a "V" bottom was certainly a possibility until Friday. Instead, the it turned out to be more of a bear flag, although quite steep, making for some confusion or uncertainty which way it would break. Now the best case scenario might be a double bottom test near 5500.
Let's look at some other recent major bear flags on the S&P 500 going back to 2018.
The one in August of 2024 (top left) was a clear bear flag and I don't recall what I was saying back then, but I'm sure I was very worried about that flag breaking down, but it never did. In early 2022 (top right) there were several bear flag-like formations, and being that it turned out to be a bear market, seeing them all break down made sense.
In 2020 (bottom left) there was a bear flag in late February and into early March that broke down and it led to a sharp decline. And in 2018 there was a bear flag breakdown in October, and in the process it created an even larger bear flag that broke down in December.
Obviously not all patterns are 100% accurate or predictive, but the current breakdown is an attention grabber. The question is, is it too late to turn bearish, or is there another leg lower coming for the stock market?
The weekly chart shows a less than optimistic negative outside reversal candlestick as it traded above and below the prior week's range, closing below the prior week's low.
Here's a closer look at that negative outside reversal, which also pushed it below its 50-week moving average again.
Could it stabilize in the area? Of course. Nothing works 100% of the time, but for now the technical analysis just got a lot more bearish.
The Federal Reserve is now expected to cut interest rates multiple times this year. There's only about a 20% chance of a cut that their next meeting in May, but right now the chances of a cut by the end of the year are 91%, with now 4 or 5 cuts being priced in much more meaningfully. For example, the chances of seeing four 0.25% cuts this year (or a 1% cut in total, depending on how they spread it out) is more than 90%.
Can this stimulate a rally, just knowing what could happen to rates in these final 9 months of the year?
This week we'll get the Chicago PMI report as well as manufacturing data, but the highlight of the week will be the March Jobs Report which comes out on Friday morning.
The DWCPF (S-fund) also broke down from what was looking like a very promising "V" bottom, but now we see either a breakdown from a bear flag, or at best a test of the prior lows coming. It's below all of the major moving averages, and the relief rally just ran out of gas trying to get back above them.
The ACWX (I-fund) is still holding up relatively well, and there is some potential support at the 50-day EMA and the bottom of that open gap. Then the 55 area has been holding well. The trend is still up but this too may become vulnerable. If the dollar keeps falling, this may still outperform the US TSP funds, but that doesn't necessarily mean it will be going up. It could just go down less.
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.
