Stocks opened sharply lower yesterday after a weaker than expected GDP report for the first quarter, influenced by an influx of imports in front of the new tariffs. But the story was the way the indices battled back, and in the case of the Dow and S&P 500, closing in positive territory. Yields were up slightly, which is interesting considering the weaker than expected GDP, but the initial Q2 GDP estimates looked much better. Small caps lagged on the day.
According to Briefing.com, the Adv. Q1 GDP report showed a 0.3% decline in real GDP, with net exports subtracting 4.83 percentage points from growth, following a 2.4% increase in Q4. Briefing.com was looking for a gain of 0.04%, but interestingly the Atlanta Fed's GDPNow was looking for a massive loss of 2.7% as recently as two days ago, although they had an "alternative model growth" estimate of -1.5%. And yesterday they came out with their 2nd Quarter estimate which was +2.4%, so how do we price all of this conflicting data in?
The PCE Price Index was unchanged month-over-month, which left it up 2.3% year-over-year versus a revised 2.7% (from 2.5%) in February, and the core PCE Price Index decelerated to 2.6% year-over-year from 3.0%, according the briefing.com.
The result, the S&P 500 (C-fund) was all over the place yesterday with deep losses of about 2% that turned into big gains in the final hour before ended the day just north of flat. We have a few good news, bad news scenarios going forward. the first good news is that stocks came off their lows yesterday after a successful test of the 20-day EMA. The bad news was the the 50-day EMA held as resistance at the day's highs again. And back to good news, after the bell yesterday Microsoft and Meta posted strong earnings and both were up big after hours, which could mean a move above that resistance to start the day, however the conference calls were still to come. And the final bad news is that there is more serious resistance at the 200-day EMA about 70 points overhead.
It's May 1st and you know what they say on Wall Street? "Sell in May and go away", as the better 6-month period of the year for stocks ended at the end of April. Of course not every year is bad during May through October, but historically November through December is, on average, where most of the gains are made in the stock market over the years.
Source: https://www.chartoftheday.com/sell-in-may-sp-500
2020 was not one of those years as the stocks market was just getting started digging itself out of the Covid crash lows when May came around. That was the year of the bullish comparison to this year's lows, and I know I repeat myself but I have to show the other side of the story which is how similar 1998's lows was to the current situation, and that one did retest the lows before the rally resumed.
The 10-year Treasury Yield was up slightly yesterday despite the weaker than expected GDP for Q1 but I suppose the stronger Q2 estimated number had its influence as well. This is now trending lower although the tight channel may not hold too long, but perhaps this is looking to test the April lows again?
I have been looking for signs of the dollar (UUP) bottoming and yesterday's rally keeps the bullish (for UUP) inverted head and shoulders pattern alive. It may not be as bullish for the I-fund if it does break to the upside.
Another good indication of economic strength or weakness is the reaction in the Transportation Index. There's some issues here on the chart with what looks like a bear flag forming below the descending resistance line. Yesterday's action was bullish, but it still has to get above 14,000 and even 14,500 before the chart improves technically.
If the overnight futures hold today and we get a close above that 50-day EMA on the S&P 500, that's great, but we still have to get by two more Magnificent 7 Dow stocks, Amazon and Apple, which will report after the close today. And then on Friday we'll get the April jobs report. Estimates are looking for a gain of about 130,000 jobs and the unemployment rate is expected to be 4.2%.
I will post the April AutoTracker winners in Friday's report.
DWCPF (S-fund) also closed well off its lows but it did close with moderate losses and it happened to make a lower high and a lower low compared to Tuesday's candlestick. I still see a bear flag running into the 50-day EMA so I am a little concerned here. Perhaps Mag 7 will bust this chart through that trouble?
ACWX (I-fund) continues to trade near its recent highs and in an area of potential resistance. It's had a great run in the last 3 or 4 weeks and a little pause may be fine, but it all depends if the dollar is bottoming or not. A strong dollar may keep this below resistance. A weak dollar could keep it rallying.
The BND (F-fund) was down just slightly yesterday as yields ticked higher.
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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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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According to Briefing.com, the Adv. Q1 GDP report showed a 0.3% decline in real GDP, with net exports subtracting 4.83 percentage points from growth, following a 2.4% increase in Q4. Briefing.com was looking for a gain of 0.04%, but interestingly the Atlanta Fed's GDPNow was looking for a massive loss of 2.7% as recently as two days ago, although they had an "alternative model growth" estimate of -1.5%. And yesterday they came out with their 2nd Quarter estimate which was +2.4%, so how do we price all of this conflicting data in?
The PCE Price Index was unchanged month-over-month, which left it up 2.3% year-over-year versus a revised 2.7% (from 2.5%) in February, and the core PCE Price Index decelerated to 2.6% year-over-year from 3.0%, according the briefing.com.
The result, the S&P 500 (C-fund) was all over the place yesterday with deep losses of about 2% that turned into big gains in the final hour before ended the day just north of flat. We have a few good news, bad news scenarios going forward. the first good news is that stocks came off their lows yesterday after a successful test of the 20-day EMA. The bad news was the the 50-day EMA held as resistance at the day's highs again. And back to good news, after the bell yesterday Microsoft and Meta posted strong earnings and both were up big after hours, which could mean a move above that resistance to start the day, however the conference calls were still to come. And the final bad news is that there is more serious resistance at the 200-day EMA about 70 points overhead.
It's May 1st and you know what they say on Wall Street? "Sell in May and go away", as the better 6-month period of the year for stocks ended at the end of April. Of course not every year is bad during May through October, but historically November through December is, on average, where most of the gains are made in the stock market over the years.
Source: https://www.chartoftheday.com/sell-in-may-sp-500
2020 was not one of those years as the stocks market was just getting started digging itself out of the Covid crash lows when May came around. That was the year of the bullish comparison to this year's lows, and I know I repeat myself but I have to show the other side of the story which is how similar 1998's lows was to the current situation, and that one did retest the lows before the rally resumed.
The 10-year Treasury Yield was up slightly yesterday despite the weaker than expected GDP for Q1 but I suppose the stronger Q2 estimated number had its influence as well. This is now trending lower although the tight channel may not hold too long, but perhaps this is looking to test the April lows again?
I have been looking for signs of the dollar (UUP) bottoming and yesterday's rally keeps the bullish (for UUP) inverted head and shoulders pattern alive. It may not be as bullish for the I-fund if it does break to the upside.
Another good indication of economic strength or weakness is the reaction in the Transportation Index. There's some issues here on the chart with what looks like a bear flag forming below the descending resistance line. Yesterday's action was bullish, but it still has to get above 14,000 and even 14,500 before the chart improves technically.
If the overnight futures hold today and we get a close above that 50-day EMA on the S&P 500, that's great, but we still have to get by two more Magnificent 7 Dow stocks, Amazon and Apple, which will report after the close today. And then on Friday we'll get the April jobs report. Estimates are looking for a gain of about 130,000 jobs and the unemployment rate is expected to be 4.2%.
I will post the April AutoTracker winners in Friday's report.
DWCPF (S-fund) also closed well off its lows but it did close with moderate losses and it happened to make a lower high and a lower low compared to Tuesday's candlestick. I still see a bear flag running into the 50-day EMA so I am a little concerned here. Perhaps Mag 7 will bust this chart through that trouble?
ACWX (I-fund) continues to trade near its recent highs and in an area of potential resistance. It's had a great run in the last 3 or 4 weeks and a little pause may be fine, but it all depends if the dollar is bottoming or not. A strong dollar may keep this below resistance. A weak dollar could keep it rallying.
The BND (F-fund) was down just slightly yesterday as yields ticked higher.
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.
