Bond yields spiked higher as inflation concerns were back, but the recently beaten down bank stocks actually benefit from higher yields so the financials rallied lifting the market, and particularly the regional banks in the small cap indices. The Dow gained 101-points and as you can see in these charts below, all of those gains came in the final hour of trading as once again we see late buying from the bulls. The F-fund was down because of those higher yields, and the dollar rallied sharply making the I-fund a little heavy.
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The battle in the market now is between the weakening economy and higher inflation, and recent data is suggesting that inflation may be easing, and the economy may be in for a soft landing, meaning a more mild recession. However, core prices in CPI and the PPI are still a bit elevated, and higher oil prices aren't helping, and we are seeing yields move higher again. At this point the market is now pricing an 87% chance of another 0.50% (50 basis pts.) interest rate hike at the Fed's May 3rd meeting. A month ago that was 20%.
Source: https://www.cmegroup.com/
Here we see the 10-year Treasury Yield possibly breaking out above that F-flag - closing above the 50-day EMA as well. The 2-year Treasury Yield (not shown) is back over 4% so this is why the market is starting to expect the Fed to remain hawkish. Higher yields will continue to wear on the economy, so it's a vicious cycle, however stocks don't seem to mind.
The F-flag above is breaking to the upside, at least initially here, and that is typical of an F-flag as they tend to break in the opposite direction that the flag is leaning.
Flags have been quite frustrating over the last year or so. There's no law that says bull flags have to break upward or bear flags have to break down, but for decades this has been the expectation. This diagram looks at the bull, bear, and F-flags and what we'd expect to see (green arrow) and the less likely outcome (red) from each of the flag formations.
So, looking at the S&P 500, which is currently within an F-flag, we should expect it to eventually break down but again, like we saw earlier this year, the flags are breaking in the opposite direction of their typical outcome.
This DWCPF, which is the S-fund, has flags all over the one year chart and basically all of them have broken in the opposite direction of what is typical of those flag formations. That is, bear flags are breaking upward, and bull flags are breaking downward. That could be good news for the S-fund now as it is in a bear flag now, which typically breaks down, but...
Here are the charts of the KRE, which are the regional banks, and the Russell 2000 ETF IWM. Both have been forming very ugly looking bear flags. Both have been below resistance and major moving averages.
There is every reason that a stock market chart technician would see these charts as being in trouble, but again over the last year that hasn't always been the case.
I continue to lay out a bearish case, but clearly the market is playing a different tune. It doesn't feel right to me, but I suppose the market is always right.
I posted charts of the S&P 500 (C-fund) and DWCPF (S-fund) above so let's get right to the EFA (I-fund), which was down, but just slightly and, given the strength in the dollar yesterday (+0.51%), I'm surprised this wasn't worse. This fund has been the leader and I see a lot of our AutoTracker members taking advantage of the strength and jumping in the I-fund.
BND (Bonds / F-fund) was down sharply with yields rallying. It has opened a few gaps on the way down, and of course we still have that large open gap down by 71.75. The 200-day EMA may try to keep it from filling that one.
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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The battle in the market now is between the weakening economy and higher inflation, and recent data is suggesting that inflation may be easing, and the economy may be in for a soft landing, meaning a more mild recession. However, core prices in CPI and the PPI are still a bit elevated, and higher oil prices aren't helping, and we are seeing yields move higher again. At this point the market is now pricing an 87% chance of another 0.50% (50 basis pts.) interest rate hike at the Fed's May 3rd meeting. A month ago that was 20%.
Source: https://www.cmegroup.com/
Here we see the 10-year Treasury Yield possibly breaking out above that F-flag - closing above the 50-day EMA as well. The 2-year Treasury Yield (not shown) is back over 4% so this is why the market is starting to expect the Fed to remain hawkish. Higher yields will continue to wear on the economy, so it's a vicious cycle, however stocks don't seem to mind.
The F-flag above is breaking to the upside, at least initially here, and that is typical of an F-flag as they tend to break in the opposite direction that the flag is leaning.
Flags have been quite frustrating over the last year or so. There's no law that says bull flags have to break upward or bear flags have to break down, but for decades this has been the expectation. This diagram looks at the bull, bear, and F-flags and what we'd expect to see (green arrow) and the less likely outcome (red) from each of the flag formations.
So, looking at the S&P 500, which is currently within an F-flag, we should expect it to eventually break down but again, like we saw earlier this year, the flags are breaking in the opposite direction of their typical outcome.
This DWCPF, which is the S-fund, has flags all over the one year chart and basically all of them have broken in the opposite direction of what is typical of those flag formations. That is, bear flags are breaking upward, and bull flags are breaking downward. That could be good news for the S-fund now as it is in a bear flag now, which typically breaks down, but...
Here are the charts of the KRE, which are the regional banks, and the Russell 2000 ETF IWM. Both have been forming very ugly looking bear flags. Both have been below resistance and major moving averages.
There is every reason that a stock market chart technician would see these charts as being in trouble, but again over the last year that hasn't always been the case.
I continue to lay out a bearish case, but clearly the market is playing a different tune. It doesn't feel right to me, but I suppose the market is always right.
I posted charts of the S&P 500 (C-fund) and DWCPF (S-fund) above so let's get right to the EFA (I-fund), which was down, but just slightly and, given the strength in the dollar yesterday (+0.51%), I'm surprised this wasn't worse. This fund has been the leader and I see a lot of our AutoTracker members taking advantage of the strength and jumping in the I-fund.
BND (Bonds / F-fund) was down sharply with yields rallying. It has opened a few gaps on the way down, and of course we still have that large open gap down by 71.75. The 200-day EMA may try to keep it from filling that one.
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.
