The rally continued on Friday capping a very nice week for the stock market as we saw weekly gains in the C, S, and I funds of +3.68%, +4.91, and +2.41% respectively. You've got to love rallies in a bear market, but we are heading into another important inflation reading with Tuesday's CPI report, and of course the Fed is watching and they could base the size of their next interest rate hike on that number. The Dow gained 377-points. Small caps and the I-fund led with gains over 2% on the day, and bonds were down slightly.
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We have a big week ahead of us, and of course that is because we get some important data this week that could sway the Federal Reserve's outlook on inflation, and thus influence their decision on interest rates. Right now the world has been pricing in a 0.75% rate hike at the next FOMC meeting on September 21.
The market also responded last week to the possibility that inflation will show signs of easing. The price of oil has fallen sharply off its 2022 highs near 130, and it closed on Friday at 86. That's actually $5 off the lows but it has been trending lower for a couple of months.
I haven't heard anybody talking about this and it could be just pretzel logic, but with the price of gasoline falling sharply in recent months, doesn't that put more money in people's pockets? And isn't an excess money supply the cause of inflation? It's good for the economy, but that's what Powell is trying to avoid until he gets inflation under control.
The S&P 500 chart is full of all kinds of possibilities but let's look at trend lines and moving averages that can act as support or resistance, and right now there's probably more resistance overhead than support below, but as you'll see in another chart, this week has some positives going for it. There are also two open gaps below that could eventually get filled (~ 4000 and 3800.)
Momentum is a strong force and we head into this week with the bulls having the momentum. However, we've seen these spiky rallies before, and outside of the big bear market rally from June to September, most of these failed abruptly in the bear market.
This weekly chart of the S&P 500 shows the tremendous rally off the June lows, but it doesn't take too much of an imagination to see that it may have created another bear flag. The top of the flag is all the way up near 4400, but there's tough resistance closer to 4300. If the market heads lower and doesn't test the top of the flag, then a breakdown is possible, similar to what we saw in April when that bear flag broke down.
This is options and futures contract expiration week and it tends to have a positive bias. There are a ton of put options outstanding (bets that stocks will go down) and they will expire at Friday's close. This is a pretty good reason for stocks to stay buoyant or move higher this week, so that the market can dish out the most pain to those betting against it.
September is off to a good start but as we look at the seasonality chart you'll see that this isn't all that uncommon. It's the second half of the month that brandishes the bearish reputation. Most of this data in this 30 year chart is based off of typically bull market activity, rather than a rare bear market, which we are arguably still in. Next week, bull or bear market, those options are gone and the downside can continue after the market makers made their money on those puts that would expire worthless if stocks don't go down this week.
That's all speculation, but that's the case for a rally this week. In a bear market however, the risks are always higher so there's no guarantees.
The CPI Report comes out before the opening tomorrow so today is the last day to position your account for that reaction. So far we've had a "buy the rumor" reaction but I suppose that could change today. The talk of a significant decline in the CPI has triggered a rally into the report. Not many are expecting a CPI worse or as bad as the last few, but with so many people leaning the same way, would it be a stretch to see a "sell the news reaction", regardless of what the report says?
We went over the S&P 500 (C-fund) above but I'll post this one with trading volume and the Price Momentum indicator. Notice how light the volume has been post holiday trading. It should pick up this week. Not only because of the CPI tomorrow, but because Friday is a quadruple witching expiration week, and I made note of the prior one in June.
The DWCPF (S-fund / small caps) is in the same boat as the S&P but it did show a little more relative strength when it closed above its descending resistance line. It is possibly just testing the 20-day EMA. You can see the prior failed rallies in green.
EFA (I-fund) had a huge day and the outperformance was in large part because of the 0.71% loss in the dollar on Friday.
The dollar has pulled back to test the breakout area again, which is typical of this cup and handle like breakout in the UUP. Technically, it "should" hold as support, but a headline or two could change that.
The BND (Bonds / F-fund) was down slightly as yields rallied yet again. The trend in bonds is down, and unless it breaks above that descending trading channel, it could be looking to retest the June lows. If it does, it would be easy to believe stocks will do the same thing.
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
To get weekly or daily notifications when we post new commentary, sign up HERE.
Thanks so much 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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[TD="width: 338, align: center"] Daily TSP Funds Return
[TR]
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We have a big week ahead of us, and of course that is because we get some important data this week that could sway the Federal Reserve's outlook on inflation, and thus influence their decision on interest rates. Right now the world has been pricing in a 0.75% rate hike at the next FOMC meeting on September 21.
The market also responded last week to the possibility that inflation will show signs of easing. The price of oil has fallen sharply off its 2022 highs near 130, and it closed on Friday at 86. That's actually $5 off the lows but it has been trending lower for a couple of months.
I haven't heard anybody talking about this and it could be just pretzel logic, but with the price of gasoline falling sharply in recent months, doesn't that put more money in people's pockets? And isn't an excess money supply the cause of inflation? It's good for the economy, but that's what Powell is trying to avoid until he gets inflation under control.
The S&P 500 chart is full of all kinds of possibilities but let's look at trend lines and moving averages that can act as support or resistance, and right now there's probably more resistance overhead than support below, but as you'll see in another chart, this week has some positives going for it. There are also two open gaps below that could eventually get filled (~ 4000 and 3800.)
Momentum is a strong force and we head into this week with the bulls having the momentum. However, we've seen these spiky rallies before, and outside of the big bear market rally from June to September, most of these failed abruptly in the bear market.
This weekly chart of the S&P 500 shows the tremendous rally off the June lows, but it doesn't take too much of an imagination to see that it may have created another bear flag. The top of the flag is all the way up near 4400, but there's tough resistance closer to 4300. If the market heads lower and doesn't test the top of the flag, then a breakdown is possible, similar to what we saw in April when that bear flag broke down.
This is options and futures contract expiration week and it tends to have a positive bias. There are a ton of put options outstanding (bets that stocks will go down) and they will expire at Friday's close. This is a pretty good reason for stocks to stay buoyant or move higher this week, so that the market can dish out the most pain to those betting against it.
September is off to a good start but as we look at the seasonality chart you'll see that this isn't all that uncommon. It's the second half of the month that brandishes the bearish reputation. Most of this data in this 30 year chart is based off of typically bull market activity, rather than a rare bear market, which we are arguably still in. Next week, bull or bear market, those options are gone and the downside can continue after the market makers made their money on those puts that would expire worthless if stocks don't go down this week.
That's all speculation, but that's the case for a rally this week. In a bear market however, the risks are always higher so there's no guarantees.
The CPI Report comes out before the opening tomorrow so today is the last day to position your account for that reaction. So far we've had a "buy the rumor" reaction but I suppose that could change today. The talk of a significant decline in the CPI has triggered a rally into the report. Not many are expecting a CPI worse or as bad as the last few, but with so many people leaning the same way, would it be a stretch to see a "sell the news reaction", regardless of what the report says?
We went over the S&P 500 (C-fund) above but I'll post this one with trading volume and the Price Momentum indicator. Notice how light the volume has been post holiday trading. It should pick up this week. Not only because of the CPI tomorrow, but because Friday is a quadruple witching expiration week, and I made note of the prior one in June.
The DWCPF (S-fund / small caps) is in the same boat as the S&P but it did show a little more relative strength when it closed above its descending resistance line. It is possibly just testing the 20-day EMA. You can see the prior failed rallies in green.
EFA (I-fund) had a huge day and the outperformance was in large part because of the 0.71% loss in the dollar on Friday.
The dollar has pulled back to test the breakout area again, which is typical of this cup and handle like breakout in the UUP. Technically, it "should" hold as support, but a headline or two could change that.
The BND (Bonds / F-fund) was down slightly as yields rallied yet again. The trend in bonds is down, and unless it breaks above that descending trading channel, it could be looking to retest the June lows. If it does, it would be easy to believe stocks will do the same thing.
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
To get weekly or daily notifications when we post new commentary, sign up HERE.
Thanks so much 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.
