Stocks traded in a fairly tight trading range on Tuesday, despite testimony from Fed Chair Jerome Powell. Yields moved higher when Powell said they were in no hurry to cut rates again, so we await this morning's CPI inflation data for the next clue. The indices were mixed with large caps flat, the I-fund up modestly, and the small caps of the S-fund lagged with a sharp loss.
You can see the latest updated TSP share prices and returns, usually posted daily by 8:30 PM ET here: https://www.tsptalk.com/tsp_share_prices.php
It's this kind of market that can lull you to sleep and have you believing that buying and holding is easier as stocks tend to always eventually go up, and that's a good point and perspective, but is it a market that is ready to blast off to new highs next, or are we in for a dramatic move to the downside? There's nothing like a 10% or more correction to turn a buy and holder into a market timer.
I will take the S-fund's DWCPF Index chart to show you the pivot point building up. We've had a flat and / or rounded top forming in recent weeks where the index has done virtually nothing. Granted that flat top came after a nice run up off the January lows, so arguably it could be a large bullish flag off the January 13 low. Is this a pause before the next leg higher as it finds support at the 50-day EMA, or has this bullish move run its course?
The open gap down near 2390 is always a potential pullback target, as is the prior highs in December. So there are multiple possibilities, and as I said a few weeks ago, there is a good chance that we could look away until the end of the year with a very good chance that the indices will be just fine. But if there is a correction brewing, I want to know about and I'd like to avoid it.
Corrections (10% or so) are inevitable and we haven't seen one in about two years. What's 10% of your account worth? It would be nice to have some cash on hands should that happen, but not having that money working now could backfire if stocks don't pull back.
OK, this is nothing that you don't already know, but what we don't know is what is going to happen next, and maybe these charts and some indicators will give us some clues so we have more than a coin toss chance in being right.
The Fed isn't as dovish as they had been on rates and some of that has to do with decent economic numbers and the unemployment rate dipping to 4.0%. Then there is the tariff situation which no one seems to be able to price into the market. It could be inflationary and on the extreme end, cause a trade war with other countries. On the other side they can be great negotiating tactics to get countries who benefit financially from us, to give something back. And on that side of the extreme, there is talk of the US making enough in tariffs to eliminate the individual income taxes altogether. I'll believe that when I see it, but it's out there as one of the possibilities.
With all of this stirring, it could be a volatile year as the market tries to price in all of these possibilities, and that sets up potential trading opportunities.
Yesterday's Powell's more hawkish take on rates helped push the 10-year Treasury higher and that move put it back above some tough resistance. This is why the small caps lagged yesterday, and if this breakout holds, the recent popularity of the S-fund (as well as the F-fund) could be in trouble.
The dollar was down on the news and there's a possibility that the dollar is weakening as a bear flag is forming, but so far the 50-day EMA has been holding as support fairly easily after the two recent successful tests.
ACWX (the I-fund tracking index) is very sensitive to the dollar's move and the weakness in the dollar help the I-fund lead again yesterday. The chart is now pushing hard against the overhead resistance, but there's more work to do because if that resistance holds, a meaningful pullback could easily move this down to the 50-day average as profit taking kicks in.
Once again we get the CPI this morning, and the PPI tomorrow morning so we'll have more data and the charts will take form and gives us more clues.
Seasonality is on the bulls' side for about three more trading days and then the typical bearish wave of late February seasonality will be another obstacle so the indices may be running out of time to take the bullish path.
The S&P 500 (C-fund) has been grinding sideways for weeks now in what may be a bull flag, or possibly a double top. If it is a bull flag, and it sure looks like one, then I would expect this to break to the upside, but it could also test the bottom of the flag again first. If it's a double top, then the open gap down near 5875, or even as low as 5845, could be tested.
BND / F-und broke out a last week, but that turned out to be a failed breakout after Friday's jobs report, and now the F-fund chart is lingering back below resistance again. The immediate open gap has been filled and the 50-day EMA has been holding firmly for weeks, and there is some imminent rising support also trying to hold in this current area.
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.
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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 use additional methods and strategies to determine fund positions.
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You can see the latest updated TSP share prices and returns, usually posted daily by 8:30 PM ET here: https://www.tsptalk.com/tsp_share_prices.php
It's this kind of market that can lull you to sleep and have you believing that buying and holding is easier as stocks tend to always eventually go up, and that's a good point and perspective, but is it a market that is ready to blast off to new highs next, or are we in for a dramatic move to the downside? There's nothing like a 10% or more correction to turn a buy and holder into a market timer.
I will take the S-fund's DWCPF Index chart to show you the pivot point building up. We've had a flat and / or rounded top forming in recent weeks where the index has done virtually nothing. Granted that flat top came after a nice run up off the January lows, so arguably it could be a large bullish flag off the January 13 low. Is this a pause before the next leg higher as it finds support at the 50-day EMA, or has this bullish move run its course?
The open gap down near 2390 is always a potential pullback target, as is the prior highs in December. So there are multiple possibilities, and as I said a few weeks ago, there is a good chance that we could look away until the end of the year with a very good chance that the indices will be just fine. But if there is a correction brewing, I want to know about and I'd like to avoid it.
Corrections (10% or so) are inevitable and we haven't seen one in about two years. What's 10% of your account worth? It would be nice to have some cash on hands should that happen, but not having that money working now could backfire if stocks don't pull back.
OK, this is nothing that you don't already know, but what we don't know is what is going to happen next, and maybe these charts and some indicators will give us some clues so we have more than a coin toss chance in being right.
The Fed isn't as dovish as they had been on rates and some of that has to do with decent economic numbers and the unemployment rate dipping to 4.0%. Then there is the tariff situation which no one seems to be able to price into the market. It could be inflationary and on the extreme end, cause a trade war with other countries. On the other side they can be great negotiating tactics to get countries who benefit financially from us, to give something back. And on that side of the extreme, there is talk of the US making enough in tariffs to eliminate the individual income taxes altogether. I'll believe that when I see it, but it's out there as one of the possibilities.
With all of this stirring, it could be a volatile year as the market tries to price in all of these possibilities, and that sets up potential trading opportunities.
Yesterday's Powell's more hawkish take on rates helped push the 10-year Treasury higher and that move put it back above some tough resistance. This is why the small caps lagged yesterday, and if this breakout holds, the recent popularity of the S-fund (as well as the F-fund) could be in trouble.
The dollar was down on the news and there's a possibility that the dollar is weakening as a bear flag is forming, but so far the 50-day EMA has been holding as support fairly easily after the two recent successful tests.
ACWX (the I-fund tracking index) is very sensitive to the dollar's move and the weakness in the dollar help the I-fund lead again yesterday. The chart is now pushing hard against the overhead resistance, but there's more work to do because if that resistance holds, a meaningful pullback could easily move this down to the 50-day average as profit taking kicks in.
Once again we get the CPI this morning, and the PPI tomorrow morning so we'll have more data and the charts will take form and gives us more clues.
Seasonality is on the bulls' side for about three more trading days and then the typical bearish wave of late February seasonality will be another obstacle so the indices may be running out of time to take the bullish path.
The S&P 500 (C-fund) has been grinding sideways for weeks now in what may be a bull flag, or possibly a double top. If it is a bull flag, and it sure looks like one, then I would expect this to break to the upside, but it could also test the bottom of the flag again first. If it's a double top, then the open gap down near 5875, or even as low as 5845, could be tested.
BND / F-und broke out a last week, but that turned out to be a failed breakout after Friday's jobs report, and now the F-fund chart is lingering back below resistance again. The immediate open gap has been filled and the 50-day EMA has been holding firmly for weeks, and there is some imminent rising support also trying to hold in this current area.
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 use additional methods and strategies to determine fund positions.
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