Stocks rallied again on Tuesday and the S&P 500 continues to push above layers of resistance with its 0.6% gain on the day, but now it is up against the potential bear market rally killer, the 50-day moving average. The Dow added 300-points and the Nasdaq nearly 100, and with the small caps and I-fund also adding about 0.6%, the rally continues to remain broad. Yields fell sharply helping the F-fund to a solid gain.
It's certainly a time to be nervous, but the market loves to climb that wall of worry. However that wall is hitting another wall - the wall of the 50-day EMA. And this comes at a time when more of the Magnificent 7 stocks are about to report - four this week, and we may hear more about what tariffs are expected to do to when these companies report in the coming days as they provide guidance for future quarterly earnings.
On the other hand, many investors are starting to scratch their head as the market continues higher and wonder if interest rate cuts, corporate tax cuts, and deregulation may at the least nullify the impact of tariffs on the market, which may have already been priced in.
As we look at the chart of the S&P 500 (C-fund) we see that yesterday's high was 5572 and it closed at 5561, and the 50-day EMA is currently 5570. So the average held yesterday, but after recently breaking above the 300-day average (not shown but currently 5507) and the descending resistance line off the peak near 500, the bears have some serious fodder as the 50-day EMA, as well as the 200-day EMA, can be bear market rally killers. The S&P has been up for six straight trading days and some of those daily gains were huge last week, so even if the bulls are not going to fold, a little sideways action for a few days at the least to digest the gains seems very possible.
Nothing would frustrate the bears more than another pop higher. We saw that at the 2020 market lows, and I was a victim of that. I was not expecting a "V" bottom that year so I kept waiting for the pullback or retest of the lows that never came. As I pointed out before, the difference this time is that the Fed and the US government isn't dishing out stimulus by the bushel.
I had been showing that bullish 2020 chart comparison, but here's an alternative decline from 1998 that also looks very similar to today's charts, so a retest is still not off the table.
Technically there is an argument that this rally could have more room to run. Not only up to the 200-day EMA near 5640, but to the top of the open gap which is officially at April 2nd's closing price near 5670. That would be another 110 points from the current level.
Where does that leave us? It's not an easy call.
The dollar (UUP) is a major influence on the I-fund, but also the stock market and economy in general. The trend is still down, but there are some signs that it is trying to bottom, and it has to start closing regularly above 27.25 to create that inverted head and shoulders formation.
If the dollar does bottom, it should make sense that the I-fund (ACWX) could hit a double (or is it triple) top and pause for a while. Technically it doesn't have to go down, but it would likely under perform US stocks - again, if the dollar rebounds.
The 10-year Treasury Yield was down sharply again yesterday, and the small caps may start getting more interesting.
Here's a longer-term view and it's not a stretch to see a head and shoulders pattern here, and if it falls below 4.1% (currently 4.17%) that would be a second breakdown below the neckline support. That would likely pull the 2-year Treasury Bond (not shown) down even further, and at 3.66%, the Fed is behind with its Fed Funds Rate currently 4.25% - 4.5%, which historically tracks the 2-year yield.
We get some big earnings reports this week and four Magnificent 7 stocks will be reporting beginning after the close today with Microsoft and Meta, and Amazon and Apple will report after the market close on Thursday.
Friday we 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%.
DWCPF (S-fund) is also approaching its 50-day average and other resistance after not having too much of a problem moving above the descending resistance line. This looks a little more like a bear flag than a "V" bottom but if yields are coming down and the S&P 500 goes up, this should follow, but if it fails here, we can't say it was too surprising.
The BND (F-fund) has been rallying hard with yields falling sharply. It closed above another resistance line as it tries to make its way to the early April peak. That has been quite the up and down in a few week and here it is battling back.
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's certainly a time to be nervous, but the market loves to climb that wall of worry. However that wall is hitting another wall - the wall of the 50-day EMA. And this comes at a time when more of the Magnificent 7 stocks are about to report - four this week, and we may hear more about what tariffs are expected to do to when these companies report in the coming days as they provide guidance for future quarterly earnings.
On the other hand, many investors are starting to scratch their head as the market continues higher and wonder if interest rate cuts, corporate tax cuts, and deregulation may at the least nullify the impact of tariffs on the market, which may have already been priced in.
As we look at the chart of the S&P 500 (C-fund) we see that yesterday's high was 5572 and it closed at 5561, and the 50-day EMA is currently 5570. So the average held yesterday, but after recently breaking above the 300-day average (not shown but currently 5507) and the descending resistance line off the peak near 500, the bears have some serious fodder as the 50-day EMA, as well as the 200-day EMA, can be bear market rally killers. The S&P has been up for six straight trading days and some of those daily gains were huge last week, so even if the bulls are not going to fold, a little sideways action for a few days at the least to digest the gains seems very possible.
Nothing would frustrate the bears more than another pop higher. We saw that at the 2020 market lows, and I was a victim of that. I was not expecting a "V" bottom that year so I kept waiting for the pullback or retest of the lows that never came. As I pointed out before, the difference this time is that the Fed and the US government isn't dishing out stimulus by the bushel.
I had been showing that bullish 2020 chart comparison, but here's an alternative decline from 1998 that also looks very similar to today's charts, so a retest is still not off the table.
Technically there is an argument that this rally could have more room to run. Not only up to the 200-day EMA near 5640, but to the top of the open gap which is officially at April 2nd's closing price near 5670. That would be another 110 points from the current level.
Where does that leave us? It's not an easy call.
The dollar (UUP) is a major influence on the I-fund, but also the stock market and economy in general. The trend is still down, but there are some signs that it is trying to bottom, and it has to start closing regularly above 27.25 to create that inverted head and shoulders formation.
If the dollar does bottom, it should make sense that the I-fund (ACWX) could hit a double (or is it triple) top and pause for a while. Technically it doesn't have to go down, but it would likely under perform US stocks - again, if the dollar rebounds.
The 10-year Treasury Yield was down sharply again yesterday, and the small caps may start getting more interesting.
Here's a longer-term view and it's not a stretch to see a head and shoulders pattern here, and if it falls below 4.1% (currently 4.17%) that would be a second breakdown below the neckline support. That would likely pull the 2-year Treasury Bond (not shown) down even further, and at 3.66%, the Fed is behind with its Fed Funds Rate currently 4.25% - 4.5%, which historically tracks the 2-year yield.
We get some big earnings reports this week and four Magnificent 7 stocks will be reporting beginning after the close today with Microsoft and Meta, and Amazon and Apple will report after the market close on Thursday.
Friday we 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%.
DWCPF (S-fund) is also approaching its 50-day average and other resistance after not having too much of a problem moving above the descending resistance line. This looks a little more like a bear flag than a "V" bottom but if yields are coming down and the S&P 500 goes up, this should follow, but if it fails here, we can't say it was too surprising.
The BND (F-fund) has been rallying hard with yields falling sharply. It closed above another resistance line as it tries to make its way to the early April peak. That has been quite the up and down in a few week and here it is battling back.
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.
