Everyone knew it was coming, yet the market was still blindsided by the news of the new tariffs being imposed. I don't understand it all, but I do understand charts and they are always trying to tell a story, just as the bear flags that broke down last Friday tried to tell us that the market may not like the tariff news. We saw 4% to 9% losses in the US indices with the Transportation Index losing the 9%. The I-fund was down "just" 2% and bonds (F-fund) were up as yields dropped sharply.
I won't go into all the tariff analysis because I really don't understand it all. I know there are a lot of new experts out there who will tell you why they the tariffs will be great or why they are awful, but what we want to know is where to put our money while they fight it out. Is this a time to dump everything and sit on the sidelines for a while? Or is this the buying opportunity of the year? Of course if you're all in and don't have cash it's not much of a benefit, but at least knowing whether to hold or sell might be helpful.
Technically, there is more room for the S&P 500 (C-fund) to fall after bear flag breakdowns and other support failing. Once this fell below the 200-day EMA we had a warning. Now it's below the 300-day EMA and that's fairly extreme, but the bear flag downside targets are lower. However, trading volume spiked yesterday and that's a sign of capitulation starting. There is an open gap and technically 5575 and 5675 are potential fills; the former being Wednesday's low and the latter being Wednesday's closing price.
Sentiment is at extremely bearish levels, and at any time we can see monster snap back rallies that are worth trying to catch, but you have to be nimble otherwise those rallies can quickly fail and start another leg down. The rally in March lasted two weeks but if if you didn't sell it, you're down at the lows with the buy and holders.
Here's some sentiment data that is getting a little extreme in the form of the Volatility Index (the fear indicator). Yesterday it closed at 30, an area it just missed during the prior two pullbacks in stocks. Is that the target and will this excess fear start to subside? We only have to go back to last August to see that it can get much, much worse.
How about 65 -- do you remember that last summer? If not, that's a pretty good lessen teaching us that buying fear is a good thing, and after a few months you may not remember what the fuss was all about.
Of course bear markets and recessions are a different story. We tend to remember those and the bond market's action lately is starting to worry about the economy.
The 10-year Treasury Yield broke down further yesterday and fell all the way to 4.0% before rebounding. As I have said before, yield levels don't matter as much as yield changes and the speed at which they change. They change quickly when there is a change in the economic environment and right now the bond market is pricing in that the tariffs may change the economic environment.
How did the economically sensitive Dow Transportation Index react to the news? That's one of the bigger one day moves we've seen post COVID.
Anyway, this wasn't a one day event and this could play out over weeks or longer -- whether it's another snap back rally or a move to the lower targets of the bearish chart formations.
The jobs report could be a market mover as well as sensitive as the market has become to the economy. This is rear-view mirror data of course, being March's employment numbers, and people are now more focused on what the tariffs will do to the future of the labor market.
The Jobs Report estimates are looking for a gain of 130K to 145K jobs and an unemployment rate of 4.1% to 4.2%.
DWCPF (S-fund) looks no better than the S&P 500 and a 7% one day loss is some pretty serious stuff. This is in a down trend but when this ever decides to bounce back, it could be very rewarding to catch some of that, and there is an open gap up near 2040. Dangerous yes. Easy to do, no. But we know it's coming at some point.
ACWX (I-fund) was down sharply yesterday but a 2% loss doesn't look so bad compared to the US indices. Why did it hold up better that the US? Look what happened to the dollar (UUP.)
After Monday's breakout, and Tuesday's retest of the flag, BND (F-fund) pushed higher again making new highs for 2025. It looks good but it did close well off yesterday's highs creating a mediocre close.
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.
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It turns out that the 2-week rally off the prior lows was a trap, a dead cat bounce, and unfortunately the "V" bottom broke down and turned out to be a steep bear flag, although it wasn't easy to distinguish. But once that red flag and "V" bottom broke down last week, we can't say we weren't warned. I won't go into all the tariff analysis because I really don't understand it all. I know there are a lot of new experts out there who will tell you why they the tariffs will be great or why they are awful, but what we want to know is where to put our money while they fight it out. Is this a time to dump everything and sit on the sidelines for a while? Or is this the buying opportunity of the year? Of course if you're all in and don't have cash it's not much of a benefit, but at least knowing whether to hold or sell might be helpful.
Technically, there is more room for the S&P 500 (C-fund) to fall after bear flag breakdowns and other support failing. Once this fell below the 200-day EMA we had a warning. Now it's below the 300-day EMA and that's fairly extreme, but the bear flag downside targets are lower. However, trading volume spiked yesterday and that's a sign of capitulation starting. There is an open gap and technically 5575 and 5675 are potential fills; the former being Wednesday's low and the latter being Wednesday's closing price.
Sentiment is at extremely bearish levels, and at any time we can see monster snap back rallies that are worth trying to catch, but you have to be nimble otherwise those rallies can quickly fail and start another leg down. The rally in March lasted two weeks but if if you didn't sell it, you're down at the lows with the buy and holders.
Here's some sentiment data that is getting a little extreme in the form of the Volatility Index (the fear indicator). Yesterday it closed at 30, an area it just missed during the prior two pullbacks in stocks. Is that the target and will this excess fear start to subside? We only have to go back to last August to see that it can get much, much worse.
How about 65 -- do you remember that last summer? If not, that's a pretty good lessen teaching us that buying fear is a good thing, and after a few months you may not remember what the fuss was all about.
Of course bear markets and recessions are a different story. We tend to remember those and the bond market's action lately is starting to worry about the economy.
The 10-year Treasury Yield broke down further yesterday and fell all the way to 4.0% before rebounding. As I have said before, yield levels don't matter as much as yield changes and the speed at which they change. They change quickly when there is a change in the economic environment and right now the bond market is pricing in that the tariffs may change the economic environment.
How did the economically sensitive Dow Transportation Index react to the news? That's one of the bigger one day moves we've seen post COVID.
Anyway, this wasn't a one day event and this could play out over weeks or longer -- whether it's another snap back rally or a move to the lower targets of the bearish chart formations.
The jobs report could be a market mover as well as sensitive as the market has become to the economy. This is rear-view mirror data of course, being March's employment numbers, and people are now more focused on what the tariffs will do to the future of the labor market.
The Jobs Report estimates are looking for a gain of 130K to 145K jobs and an unemployment rate of 4.1% to 4.2%.
DWCPF (S-fund) looks no better than the S&P 500 and a 7% one day loss is some pretty serious stuff. This is in a down trend but when this ever decides to bounce back, it could be very rewarding to catch some of that, and there is an open gap up near 2040. Dangerous yes. Easy to do, no. But we know it's coming at some point.
ACWX (I-fund) was down sharply yesterday but a 2% loss doesn't look so bad compared to the US indices. Why did it hold up better that the US? Look what happened to the dollar (UUP.)
After Monday's breakout, and Tuesday's retest of the flag, BND (F-fund) pushed higher again making new highs for 2025. It looks good but it did close well off yesterday's highs creating a mediocre close.
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.
