The stock market took a day off from the recent rally up to new highs in the big three indices, and the Dow temporarily touched 40,000 for the first time ever, but we did see some profit talking as the day wore on, and that's nothing too surprising. The bulls still have the ball in their court and if the bears have any fire power in them, they haven't shown it yet. Bond yields and the dollar had relief rallies, but they may be finding support, which could make or break the rally in stocks depending on if it holds.
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There wasn't much to write home about yesterday as options expiration week comes toward an end. The losses were tepid and certainly not alarming, but could it be the match that ignites a move to the exits? There's not a whole lot of bad news out there and even the bad news is getting bought because weak economic data and any threats of a recession just mean potential lower interest rates, and right now that's all investors seem to be concerned about -- will they or won't they cut rates in June, or how many cuts this year?
The 10-year Treasury Yield has been pricing in rate cuts, at least since the April peak. The chart did break the rising support coming off the February lows, but there is some support in the current area where the 100-day EMA is touching the breakout area of that inverted head and shoulders pattern we talked about for weeks earlier this year. Often the breakout areas become support when retested.
The dollar is also testing some longer term support, although there is an open gap below that support that could be a draw to go lower. But the 50-day EMA also held so far this week, and all of that means is that the rising trend is still intact. A strong dollar could put pressure back on stocks.
The Transportation Index was down slightly on Thursday but it continues to cling to the 50-day EMA for support. It closed just below the descending resistance line - depending on how thick your crayon is, and clearly the Transports are lagging the general market - and being the market leader, what is this telling us? It is very economically sensitive - generally doing better when the economy is strong, but right now weak economic data is sending yields lower, and that is helping the stock market. Interesting situation.
I know I sound bearish, and yes, in the short-term I am leaning that way, but the bulls are still in charge and they can whack the bears easily by busting some of those concerns I showed above.
Nvidia reports next week and that could be the highlight of the week, but again it's a post options expiration week, and depending on how this week ends, next week could retrace some of this week's gains, assuming they hold today.
The S&P 500 (C-fund) busted out of a long trading channel on Wednesday, and yesterday it came back modestly to test that breakout area again. The blue dashed is another breakout area that needs to hold on a test, otherwise we may be dealing with a failed breakout which would potentially trigger a double top pullback. But for now the bulls are in charge and we'll see how firmly they defend their new support levels.
DWCPF (S-fund) and the EFA (I-fund) are moving in the same direction with the small caps failing to make a new high, while the EFA blasted through resistance several days ago and it is now trying to challenge the C-fund for top return for the year. It's still well behind but the gap has been closing recently.
The weakened dollar helped the I-fund get to that position, but as we talked about above, the dollar is testing some strong support right now, and if it bounces, the I-fund could easily come back to test its breakout line.
BND (bonds / F-fund) also pulled back with yields up after a nice run higher. So far it's not too meaningful but the key will be how it reacts to any tests down to 71.80 and 71.70.
Thanks so much for reading! Have a great weekend!
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
For more info our other premium services, please go here... www.tsptalk.com/premiums.html
Daily Market Commentary Archives
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 use additional methods and strategies to determine fund positions.
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There wasn't much to write home about yesterday as options expiration week comes toward an end. The losses were tepid and certainly not alarming, but could it be the match that ignites a move to the exits? There's not a whole lot of bad news out there and even the bad news is getting bought because weak economic data and any threats of a recession just mean potential lower interest rates, and right now that's all investors seem to be concerned about -- will they or won't they cut rates in June, or how many cuts this year?
The 10-year Treasury Yield has been pricing in rate cuts, at least since the April peak. The chart did break the rising support coming off the February lows, but there is some support in the current area where the 100-day EMA is touching the breakout area of that inverted head and shoulders pattern we talked about for weeks earlier this year. Often the breakout areas become support when retested.
The dollar is also testing some longer term support, although there is an open gap below that support that could be a draw to go lower. But the 50-day EMA also held so far this week, and all of that means is that the rising trend is still intact. A strong dollar could put pressure back on stocks.
The Transportation Index was down slightly on Thursday but it continues to cling to the 50-day EMA for support. It closed just below the descending resistance line - depending on how thick your crayon is, and clearly the Transports are lagging the general market - and being the market leader, what is this telling us? It is very economically sensitive - generally doing better when the economy is strong, but right now weak economic data is sending yields lower, and that is helping the stock market. Interesting situation.
I know I sound bearish, and yes, in the short-term I am leaning that way, but the bulls are still in charge and they can whack the bears easily by busting some of those concerns I showed above.
Nvidia reports next week and that could be the highlight of the week, but again it's a post options expiration week, and depending on how this week ends, next week could retrace some of this week's gains, assuming they hold today.
The S&P 500 (C-fund) busted out of a long trading channel on Wednesday, and yesterday it came back modestly to test that breakout area again. The blue dashed is another breakout area that needs to hold on a test, otherwise we may be dealing with a failed breakout which would potentially trigger a double top pullback. But for now the bulls are in charge and we'll see how firmly they defend their new support levels.
DWCPF (S-fund) and the EFA (I-fund) are moving in the same direction with the small caps failing to make a new high, while the EFA blasted through resistance several days ago and it is now trying to challenge the C-fund for top return for the year. It's still well behind but the gap has been closing recently.
The weakened dollar helped the I-fund get to that position, but as we talked about above, the dollar is testing some strong support right now, and if it bounces, the I-fund could easily come back to test its breakout line.
BND (bonds / F-fund) also pulled back with yields up after a nice run higher. So far it's not too meaningful but the key will be how it reacts to any tests down to 71.80 and 71.70.
Thanks so much for reading! Have a great weekend!
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
For more info our other premium services, please go here... www.tsptalk.com/premiums.html
Daily Market Commentary Archives
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 use additional methods and strategies to determine fund positions.
