Another mostly benign inflation report in Friday's PCE Prices data set up a positive open on Friday morning. As the day wore on however, the bulls slowly slipped away while the bears chipped away at those early gains. The Dow still finished the day with a solid three-digit gain, but the S&P 500 and Nasdaq could not stay positive. Bonds (F-fund) were up sharply as yields fell on the data.
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The PCE data helped move those yields lower and that may have also been a catalyst for the small caps which led with a gain of 0.31% on the day. As interest rates trend lower, the small caps have become more attractive, although they remain quite volatile and have had some extreme ups and down recently.
The RSP is not the small caps but rather the Equal Weighted S&P 500, which has acted very similar to our S-fund. It tracks the same 500 stocks that are in the S&P 500 but with no weighted advantage to the largest companies in the index. So same stocks, but acting differently as the RSP was up nicely on Friday and closed at a new high for the year, while the S&P 500 was down and didn't quite make a new high.
The concerning part of the RSP was the way it closed on Friday after creating a long bearish tail despite the gain, creating a negative reversal look. It's not always a turning point, but it is typically a short-term bearish set up.
The 10-year Yield fell on Friday helping the F-fund and the chart looks to be failing at the top of this descending channel.
It's the 2-year Treasury Yield that the Fed pays attention to as historically they have closely followed this yield. It has been trading near 3.5% and 3.6% for most of the month, and with the Fed Funds Rate still at 4.75 - 5.0%, they have a lot more room to continue to lower rates.
That's why stocks and particularly small caps have been performing well, even in this bearish month of September. And here comes October, the sequel to the normally bearish two month period before a presidential election.
The fact that stocks have been rallying in the face of the seasonal headwind may be telling us something bullish is brewing. And here's another bullish indication. Despite the Fed liquidity drain in recent weeks, stocks have done a good job of staying buoyant - which is not typically the case. That's a big positive divergence.
Now liquidity is turning back up and should continue to as we head into the new quarter. This is a tail wind for stocks if the pre-election seasonality doesn't nullify it. There are also some short-term concerns with sentiment and some overbought indicators, but overall stocks are holding up well considering the calendar.
With the PCE data out of the way, investors will be focused on this Friday's Jobs Report where estimates are looking for a gain of 120K to 135K jobs. Still positive but last month's gain was 142K so it may be heading in the wrong direction, although it has been the Fed's intent to slow down the labor market. The unemployment rate is expected to remain at 4.2%.
Admin Note: In the coming weeks we may be working on a server and software upgrade that could disrupt the website periodically. It's something I am not looking forward to, but I've procrastinated long enough and it's time to get it done. The maintenance could take part or all of the website down at times, but it will not impact Premium Service email and text alerts. I'll keep you posted.
The S&P 500 (C-fund) continues to rise up that narrow F-flag (blue), and it's difficult to say how long that flag can hold before it breaks, but a new month or a jobs report later this week could certainly resolve that. It's at the top of the larger red channel, or wedge-like formation, with resistance being tested now. It's not a bad looking chart, but short-term it could come down to retest some support to perhaps gather strength for yet another leg higher at some point. Seasonality is not in its favor, but so far that hasn't mattered this year.
The DWCPF (S-fund) has been moving sideways in a tight range recently, just under the prior high. There are still technically two open gaps below but this sideways move is looking like a possible bull flag, which would tend to breakout to the upside.
The EFA was down 0.60% on Friday but the I-fund was given a loss of just 0.30%. The "ex USA ex China ex Hong Kong Index" was up 0.63%, so again it seems to be somewhere between the two. I'm looking at ACWX as a possible ETF that tracks the new I-fund's components. Still working on it.
We're still in limbo while the TSP transforms to the new components so we've been guessing at the return before the TSP posts the price is a little tough a the moment. You can see the final daily price and return posted on our site each evening. Here's more information from tsp.gov.
BND (F-fund) bounced off that 20-day EMA that we have been watching, and it broke the short-term downtrend in the process. Is this a green light for the F-fund to make another move to a higher high, after the higher low? It's hard to argue otherwise, based on the chart.
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.html
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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[/TR]
[/TABLE]
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The PCE data helped move those yields lower and that may have also been a catalyst for the small caps which led with a gain of 0.31% on the day. As interest rates trend lower, the small caps have become more attractive, although they remain quite volatile and have had some extreme ups and down recently.
The RSP is not the small caps but rather the Equal Weighted S&P 500, which has acted very similar to our S-fund. It tracks the same 500 stocks that are in the S&P 500 but with no weighted advantage to the largest companies in the index. So same stocks, but acting differently as the RSP was up nicely on Friday and closed at a new high for the year, while the S&P 500 was down and didn't quite make a new high.
The concerning part of the RSP was the way it closed on Friday after creating a long bearish tail despite the gain, creating a negative reversal look. It's not always a turning point, but it is typically a short-term bearish set up.
The 10-year Yield fell on Friday helping the F-fund and the chart looks to be failing at the top of this descending channel.
It's the 2-year Treasury Yield that the Fed pays attention to as historically they have closely followed this yield. It has been trading near 3.5% and 3.6% for most of the month, and with the Fed Funds Rate still at 4.75 - 5.0%, they have a lot more room to continue to lower rates.
That's why stocks and particularly small caps have been performing well, even in this bearish month of September. And here comes October, the sequel to the normally bearish two month period before a presidential election.
The fact that stocks have been rallying in the face of the seasonal headwind may be telling us something bullish is brewing. And here's another bullish indication. Despite the Fed liquidity drain in recent weeks, stocks have done a good job of staying buoyant - which is not typically the case. That's a big positive divergence.
Now liquidity is turning back up and should continue to as we head into the new quarter. This is a tail wind for stocks if the pre-election seasonality doesn't nullify it. There are also some short-term concerns with sentiment and some overbought indicators, but overall stocks are holding up well considering the calendar.
With the PCE data out of the way, investors will be focused on this Friday's Jobs Report where estimates are looking for a gain of 120K to 135K jobs. Still positive but last month's gain was 142K so it may be heading in the wrong direction, although it has been the Fed's intent to slow down the labor market. The unemployment rate is expected to remain at 4.2%.
Admin Note: In the coming weeks we may be working on a server and software upgrade that could disrupt the website periodically. It's something I am not looking forward to, but I've procrastinated long enough and it's time to get it done. The maintenance could take part or all of the website down at times, but it will not impact Premium Service email and text alerts. I'll keep you posted.
The S&P 500 (C-fund) continues to rise up that narrow F-flag (blue), and it's difficult to say how long that flag can hold before it breaks, but a new month or a jobs report later this week could certainly resolve that. It's at the top of the larger red channel, or wedge-like formation, with resistance being tested now. It's not a bad looking chart, but short-term it could come down to retest some support to perhaps gather strength for yet another leg higher at some point. Seasonality is not in its favor, but so far that hasn't mattered this year.
The DWCPF (S-fund) has been moving sideways in a tight range recently, just under the prior high. There are still technically two open gaps below but this sideways move is looking like a possible bull flag, which would tend to breakout to the upside.
The EFA was down 0.60% on Friday but the I-fund was given a loss of just 0.30%. The "ex USA ex China ex Hong Kong Index" was up 0.63%, so again it seems to be somewhere between the two. I'm looking at ACWX as a possible ETF that tracks the new I-fund's components. Still working on it.
We're still in limbo while the TSP transforms to the new components so we've been guessing at the return before the TSP posts the price is a little tough a the moment. You can see the final daily price and return posted on our site each evening. Here's more information from tsp.gov.
BND (F-fund) bounced off that 20-day EMA that we have been watching, and it broke the short-term downtrend in the process. Is this a green light for the F-fund to make another move to a higher high, after the higher low? It's hard to argue otherwise, based on the chart.
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.html
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.
