Stocks surged after a flat month over month CPI report. Investors are now convinced that inflation is behind us and, given the seasonality and the recent rally off the lows, it was potentially a capitulation from the bears as trading volume moved higher. You can see the gains below which are some of the biggest of the year. The recently lagging small caps stole the show yesterday with a 5.4% gain in the Russell 2000, helped by a 7.4% gain in the regional banks -- yes +7.4% in one day for the KRE. Yields and the dollar plummeted helping fuel the rally in stocks.
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On the day after the Dow made a death cross where the 50-day moving average fell below the 200-day average, stocks soared on the CPI report headline that consumer prices were flat in October. The CPI didn't go down and year over year it was still up 3.2%, more than the Fed's inflation target of 2%, but it is certainly falling and it all but guarantees that the Fed may not be raising rates again anytime soon. They may not be cutting, but pausing for sure.
I have so much to say and it's probably all noise as traders and investors digest this massive move after one report, that may or may not be an outlier. Has the market come too far, too fast since the lows made at the end of October? We do have the positive seasonality and bullish momentum, which I acknowledged, but I sounded a little bearish in yesterday's commentary and now, in hindsight, that sounded a little stupid. I made some money in the C-fund yesterday but I was far from fully invested and missed out on that giant gain in the S-fund.
Now the question is whether FOMO (fear of missing out) can continue to fuel the rally, or has the market come too far, too fast?
Not that this is a game changer, but as of this writing, the House passed a budget bill in an attempt to avoid a government shutdown. Now it goes to the Senate. The deadline is Friday. I just wanted to get that out of the way before I forget.
Back to the "death cross" on the Dow, which occurred this week. Yes, the 50-day MA moved below the 200-day MA. That's usually a bad thing, but in the short-term it often triggers oversold rallies, which we obviously have seen since the late October low.
Even the prior death cross in March of 2022 delivered a nice rally shortly afterward, but of course the market eventually rolled over from that oversold rally to decline over the next several months. Only time will tell if it will be a similar result. Nothing is guaranteed and we're only looking at tendencies.
So, is the economic data getting stronger, or weaker? Yesterday the market was celebrating weaker data, or at least less extreme growth, and the economic data is all over the place lately. Last month the Non-Farm payrolls jobs report said we gained 150,000 during October. In that same period the October household employment survey said the US lost over 300,000 jobs for the month. What's an investor to think?
The weaker than expected CPI report sent the Yield on the 10-year Treasury Yield down sharply and it gapped below the 50-day EMA, closed at 4.44%, and is heading toward an old open gap from September, after leaving a pretty good sized gap open up by 4.8%. The dollar also tanked on the news, which almost always helps prices to some degree or another...
... and of course the I-fund is usually one of the bigger beneficiaries of a declining dollar. The EFA chart did fill a gap near yesterday's high and it did hit some minor resistance.
The KRE regional bank index gained a whopping 7.4% yesterday and the small caps of the Russell 2000 an the S-fund loved that. There's some overhead resistance on both of the charts so we'll see how much momentum they have going forward.
I wanted to point out that the price of oil falling dramatically in October, and over the last 5 or 6 weeks, really helped the CPI flatten out in October. The Core CPI was up 0.2% and it was the 2.5% decline in the energy index that was the main difference between the CPI and the Core CPI, which excludes energy and food prices.
Oh, boy, I can go on but I'd just be rambling. After big gains like this there is a tendency for another day or so of modest gains before the indices start to either move sideways or pull back, so we'll see how much juice this CPI rally has left.
This is a chart of the 2022 S&P 500 when we got that surprise weak CPI report in November and stocks gapped up that day as well as we though inflation was behind us and the Fed was done raising rates. After that day's rally the S&P moved up slightly then chopped around for a few weeks and eventually fell back down to fill the open gap by the middle of December.
We get the PPI (producer prices) this morning, so we'll see if that confirms the flat consumer pricing (CPI) action we just saw.
The S&P 500 (C-fund) plowed through that overhead resistance, opening another gap near 4225. It has now retraced all of the losses since that mid-September peak. There's an open gap above and several below. Trading volume ticked up and the PMO indicator moved above -0- again. Technically, this looks very ready for a rest, but momentum is on the bulls' side until they run out of steam. There were, and probably still are, a lot of bear under invested that may look to buy any dips.
DWCPF (S-fund) gained 4.35% yesterday, which I believe was the biggest gain of the year. It sure felt like it. The move finally finished filling that open gap from September, and it also closed back above its 200-day EMA for the first time since that gap was opened. The small caps love low rates so the fact that we're fairly certain that rates won't be going up anytime soon, gave the green light to investors who wanted a little more risk.
BND (bonds / F-fund) also gapped up, filling in its September gap and t is now back facing its 200-day EMA. Even though the Fed may not be raising rates, they may not be cutting them anytime soon so it will be interesting to see if this can get back above its 200-day average. At least one of the two open gaps below are probably more likely to get filled than seeing a runaway rally here.
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
For more info our other premium services, please go here... www.tsptalk.com/premiums.html
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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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On the day after the Dow made a death cross where the 50-day moving average fell below the 200-day average, stocks soared on the CPI report headline that consumer prices were flat in October. The CPI didn't go down and year over year it was still up 3.2%, more than the Fed's inflation target of 2%, but it is certainly falling and it all but guarantees that the Fed may not be raising rates again anytime soon. They may not be cutting, but pausing for sure.
I have so much to say and it's probably all noise as traders and investors digest this massive move after one report, that may or may not be an outlier. Has the market come too far, too fast since the lows made at the end of October? We do have the positive seasonality and bullish momentum, which I acknowledged, but I sounded a little bearish in yesterday's commentary and now, in hindsight, that sounded a little stupid. I made some money in the C-fund yesterday but I was far from fully invested and missed out on that giant gain in the S-fund.
Now the question is whether FOMO (fear of missing out) can continue to fuel the rally, or has the market come too far, too fast?
Not that this is a game changer, but as of this writing, the House passed a budget bill in an attempt to avoid a government shutdown. Now it goes to the Senate. The deadline is Friday. I just wanted to get that out of the way before I forget.
Back to the "death cross" on the Dow, which occurred this week. Yes, the 50-day MA moved below the 200-day MA. That's usually a bad thing, but in the short-term it often triggers oversold rallies, which we obviously have seen since the late October low.
Even the prior death cross in March of 2022 delivered a nice rally shortly afterward, but of course the market eventually rolled over from that oversold rally to decline over the next several months. Only time will tell if it will be a similar result. Nothing is guaranteed and we're only looking at tendencies.
So, is the economic data getting stronger, or weaker? Yesterday the market was celebrating weaker data, or at least less extreme growth, and the economic data is all over the place lately. Last month the Non-Farm payrolls jobs report said we gained 150,000 during October. In that same period the October household employment survey said the US lost over 300,000 jobs for the month. What's an investor to think?
The weaker than expected CPI report sent the Yield on the 10-year Treasury Yield down sharply and it gapped below the 50-day EMA, closed at 4.44%, and is heading toward an old open gap from September, after leaving a pretty good sized gap open up by 4.8%. The dollar also tanked on the news, which almost always helps prices to some degree or another...
... and of course the I-fund is usually one of the bigger beneficiaries of a declining dollar. The EFA chart did fill a gap near yesterday's high and it did hit some minor resistance.
The KRE regional bank index gained a whopping 7.4% yesterday and the small caps of the Russell 2000 an the S-fund loved that. There's some overhead resistance on both of the charts so we'll see how much momentum they have going forward.
I wanted to point out that the price of oil falling dramatically in October, and over the last 5 or 6 weeks, really helped the CPI flatten out in October. The Core CPI was up 0.2% and it was the 2.5% decline in the energy index that was the main difference between the CPI and the Core CPI, which excludes energy and food prices.
Oh, boy, I can go on but I'd just be rambling. After big gains like this there is a tendency for another day or so of modest gains before the indices start to either move sideways or pull back, so we'll see how much juice this CPI rally has left.
This is a chart of the 2022 S&P 500 when we got that surprise weak CPI report in November and stocks gapped up that day as well as we though inflation was behind us and the Fed was done raising rates. After that day's rally the S&P moved up slightly then chopped around for a few weeks and eventually fell back down to fill the open gap by the middle of December.
We get the PPI (producer prices) this morning, so we'll see if that confirms the flat consumer pricing (CPI) action we just saw.
The S&P 500 (C-fund) plowed through that overhead resistance, opening another gap near 4225. It has now retraced all of the losses since that mid-September peak. There's an open gap above and several below. Trading volume ticked up and the PMO indicator moved above -0- again. Technically, this looks very ready for a rest, but momentum is on the bulls' side until they run out of steam. There were, and probably still are, a lot of bear under invested that may look to buy any dips.
DWCPF (S-fund) gained 4.35% yesterday, which I believe was the biggest gain of the year. It sure felt like it. The move finally finished filling that open gap from September, and it also closed back above its 200-day EMA for the first time since that gap was opened. The small caps love low rates so the fact that we're fairly certain that rates won't be going up anytime soon, gave the green light to investors who wanted a little more risk.
BND (bonds / F-fund) also gapped up, filling in its September gap and t is now back facing its 200-day EMA. Even though the Fed may not be raising rates, they may not be cutting them anytime soon so it will be interesting to see if this can get back above its 200-day average. At least one of the two open gaps below are probably more likely to get filled than seeing a runaway rally here.
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
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.
