Stocks were flat to slightly higher for most of the day on Wednesday, but after the FOMC meeting, things got a little crazy. We saw sharp spikes up and down in the usual jockey for position from traders after the policy statement was released, but in the last 20-30 minutes of trading things fell apart. Apple's gain help keep the Dow (-0.61%) and Nasdaq (-0.57%) from bigger losses, but the S&P 500 (-0.75%), Transports (-1.71%), and small caps (-0.92%) were all hit fairly hard.
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The Fed kept interest rates unchanged as most expected, so we didn't even think the FOMC meeting would be much of an event, but there was enough meat on the bones in the press conference to cause investors to react. What Chairman Powell said was that inflation was unexpectedly soft in the 1st quarter, but rather than saying they are being patient, he said it is transitory which investors started to interpret as meaning the Fed is not unwilling to raise rates if inflation does come back around.
In the recent months the market has been pricing in a possible rate cut in 2019, and now that may not be as strong of a possibility. We get the April jobs report on Friday and estimates are looking for a gain of 200,000 jobs, but if that number comes out "hot", which is possible, then the market may not be too happy as it could put the Fed on rate hike alert again, after investors were looking for a possible cut.
One thing to keep in mind is that many times a big move off of an FOMC meeting is reversed in following days so I don't want to make too much of it, particularly since the bears have been burned so often this year by a market that has snapped back time after time from any minor pullbacks. But I'll go back to something I said yesterday, wondering if the market has completed a cycle where the stocks (Nasdaq 100 in this case) bottomed on that major earnings warnings from Apple in early January, and now big earnings come out and is it possible that it put a cap on stocks for a while?
So we saw stocks rollover to the downside, but we also saw the dollar bounce back from moderate losses earlier in the day to close higher, and the same for bond yields which were tanking earlier but came back to about the flat line.
The yield on the 10-year T-note broke down from that bear flag early on but you can see it bounced back into the flag after the FOMC policy statement.
Was this a one-day wonder, or a change in trend - for stocks and yields? We'll know in a couple of days, but stocks have certainly been due for a rest.
One more thing... what's up with copper? We talked about this the other day being an economically sensitive commodity, so this is an interesting move...
The S&P 500 (C-fund) made a new high in early trading yesterday, and even into late afternoon before everything turned around late and ended with a negative reversal day. The bottom of that trading channel (or is it a rising wedge?) would be tested on any negative print today, and with that open gap near 2840 acting as a potential lure, the bulls will need to get to work quickly to avoid a breakdown.
The DWCPF (S-fund) broke below its rising wedge formation, a formation that is considered bearish, but on an FOMC day there's a chance that this was an emotional fake-out so it's tough to say this is a bearish move just yet. Let's see how investors react today to the lower prices.
The Dow Transportation Index was down sharply again and this market leader has clearly been lagging of late. That 10,700 area was one level of support that we were watching and the 10,600 area, or slightly lower - even down to 10,400 near the 200-day EMA - is the make or break area.
The EFA (I-fund) fell to the bottom of its rising support line but the I-fund did get a gain because of the late selling and reversal in the dollar. We should see some give-back with today's closing price.
The AGG (Bonds / F-fund) also reversed hard to the downside after having some big gains in early trading. The Fed's less dovish stance seemed to surprise the bond market. There was a failed breakout and now the top of the bull flag and the bottom of that open gap near 108.00 is back in play for any pullback.
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
Thanks for reading. We'll see you back here tomorrow.
Tom Crowley
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 use additional methods and strategies to determine fund positions.
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The Fed kept interest rates unchanged as most expected, so we didn't even think the FOMC meeting would be much of an event, but there was enough meat on the bones in the press conference to cause investors to react. What Chairman Powell said was that inflation was unexpectedly soft in the 1st quarter, but rather than saying they are being patient, he said it is transitory which investors started to interpret as meaning the Fed is not unwilling to raise rates if inflation does come back around.
In the recent months the market has been pricing in a possible rate cut in 2019, and now that may not be as strong of a possibility. We get the April jobs report on Friday and estimates are looking for a gain of 200,000 jobs, but if that number comes out "hot", which is possible, then the market may not be too happy as it could put the Fed on rate hike alert again, after investors were looking for a possible cut.
One thing to keep in mind is that many times a big move off of an FOMC meeting is reversed in following days so I don't want to make too much of it, particularly since the bears have been burned so often this year by a market that has snapped back time after time from any minor pullbacks. But I'll go back to something I said yesterday, wondering if the market has completed a cycle where the stocks (Nasdaq 100 in this case) bottomed on that major earnings warnings from Apple in early January, and now big earnings come out and is it possible that it put a cap on stocks for a while?
So we saw stocks rollover to the downside, but we also saw the dollar bounce back from moderate losses earlier in the day to close higher, and the same for bond yields which were tanking earlier but came back to about the flat line.
The yield on the 10-year T-note broke down from that bear flag early on but you can see it bounced back into the flag after the FOMC policy statement.
Was this a one-day wonder, or a change in trend - for stocks and yields? We'll know in a couple of days, but stocks have certainly been due for a rest.
One more thing... what's up with copper? We talked about this the other day being an economically sensitive commodity, so this is an interesting move...
The S&P 500 (C-fund) made a new high in early trading yesterday, and even into late afternoon before everything turned around late and ended with a negative reversal day. The bottom of that trading channel (or is it a rising wedge?) would be tested on any negative print today, and with that open gap near 2840 acting as a potential lure, the bulls will need to get to work quickly to avoid a breakdown.
The DWCPF (S-fund) broke below its rising wedge formation, a formation that is considered bearish, but on an FOMC day there's a chance that this was an emotional fake-out so it's tough to say this is a bearish move just yet. Let's see how investors react today to the lower prices.
The Dow Transportation Index was down sharply again and this market leader has clearly been lagging of late. That 10,700 area was one level of support that we were watching and the 10,600 area, or slightly lower - even down to 10,400 near the 200-day EMA - is the make or break area.
The EFA (I-fund) fell to the bottom of its rising support line but the I-fund did get a gain because of the late selling and reversal in the dollar. We should see some give-back with today's closing price.
The AGG (Bonds / F-fund) also reversed hard to the downside after having some big gains in early trading. The Fed's less dovish stance seemed to surprise the bond market. There was a failed breakout and now the top of the bull flag and the bottom of that open gap near 108.00 is back in play for any pullback.
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
Thanks for reading. We'll see you back here tomorrow.
Tom Crowley
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 use additional methods and strategies to determine fund positions.
