Stocks moved modestly higher yesterday as investors brace for the imminent interest rate hike. As you can see in the intraday index charts below, it was a choppy day in front of today's FOMC policy statement, as the indices closed well off their lows and off their highs yesterday. The Dow gained 67-points. The 10-year yield and the dollar were down, which hasn't been very common recently.
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The S&P 500 (C-fund) was up about a half of a percent which was off the highs and made for a mediocre at best follow through day after Monday's positive reversal. We might give it a pass for doing so with the rate hike on deck today as investors may be getting a little nervous. The chart looks bad over all and the bear market may linger a lot longer, but it has been punished quite a bit since the March 29 high and could be due for some short-term relief.
DWCPF (S-fund / small caps) made its way back above that resistance line drawn from the February and March lows. It is also back inside that trading channel but can it climb back toward the top, or will the Fed fuel a breakdown? That doesn't help you, but that's what most investors are pondering as well, including some of the best money managers in the world. What next?
The EFA (I-fund) had a nice day with the dollar dipping down a bit, but I wanted to take a look at the Japanese Nikkei Index, which is a large part of our I-fund. It has been dipping since its previous market peak in March, but since then it has created a bullish looking flag formation. It is up testing its 50-day EMA and that could be a good tell. If it can get above that, the next test would be the top of the flag, which it would have to deal with eventually if it does breakout.
BND (bonds / F-fund) had a modest bounce yesterday, but it remains an ugly chart. The Fed could shake things up today but more recently the bond market has been leading the Fed.
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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The two day FOMC meeting continues today and at 2 PM ET we will know the fate of the interest rate hike. Most expect a 0.50% move so anything different could send volatility through the roof. There's not a lot of good things that the Fed can say, but I suppose that means the surprise might be to the dovish side as the worst may be priced in.
The swings after the announcement will be wide, and it's more a product of traders taking advantage of the volatility, so if you don't have the stomach for watching that kind of action, I would suggest looking away until at least after 3 PM ET to see which the market eventually wants to go.
We're in a bearish market - perhaps not officially depending on one's definition of a bear market - and in a bear market we should expect a bearish out come, but stocks have been down for several weeks since the most recent peak in late March, and they have become fairly oversold in the short-term. Not that the market has necessarily put in a bottom, but it could be getting close to a short-term low, although today's volatility could test that theory in a hurry.
Speculating at this point is a little futile at this point as, not only is it too late to change our allocation before the rate hike announcement, but today's TSP deadline will come and go before they make their announcement, which means you have to guess about tomorrow as well before having any information. Not ideal.
So, rather than speculate, I decided to take a look at the 2007 market peak before the nasty multi-year bear market began, and compare it to current look. I won't break it down issue by issue, but you can see the similarities. One thing to note is the 50-day EMA recently fell below the 200-day EMA - something it did in very early 2008 and during a move down from 1500 to1310. It eventually ran back up toward that crossover, but never made it all the way back before rolling over again and making new lows in the summer of 2008.
So things don't all happen all at once. I am trying to be patient and see if I can catch a move back up to that area but by the looks of the 2008 chart, it may not make it that far. Playing a lot of defense worked best back then, but some of the relief rallies were very big, >10% in some cases.
This current action obviously won't be an exact replica of that bear market, but it can be helpful to know how investors were reacting to similar situations.
We will get the April jobs report on Friday with estimates near +400,000 jobs, so along with the Fed rate hike and more earnings coming in every day, it's a pretty busy week for stocks.
The swings after the announcement will be wide, and it's more a product of traders taking advantage of the volatility, so if you don't have the stomach for watching that kind of action, I would suggest looking away until at least after 3 PM ET to see which the market eventually wants to go.
We're in a bearish market - perhaps not officially depending on one's definition of a bear market - and in a bear market we should expect a bearish out come, but stocks have been down for several weeks since the most recent peak in late March, and they have become fairly oversold in the short-term. Not that the market has necessarily put in a bottom, but it could be getting close to a short-term low, although today's volatility could test that theory in a hurry.
Speculating at this point is a little futile at this point as, not only is it too late to change our allocation before the rate hike announcement, but today's TSP deadline will come and go before they make their announcement, which means you have to guess about tomorrow as well before having any information. Not ideal.
So, rather than speculate, I decided to take a look at the 2007 market peak before the nasty multi-year bear market began, and compare it to current look. I won't break it down issue by issue, but you can see the similarities. One thing to note is the 50-day EMA recently fell below the 200-day EMA - something it did in very early 2008 and during a move down from 1500 to1310. It eventually ran back up toward that crossover, but never made it all the way back before rolling over again and making new lows in the summer of 2008.
So things don't all happen all at once. I am trying to be patient and see if I can catch a move back up to that area but by the looks of the 2008 chart, it may not make it that far. Playing a lot of defense worked best back then, but some of the relief rallies were very big, >10% in some cases.
This current action obviously won't be an exact replica of that bear market, but it can be helpful to know how investors were reacting to similar situations.
We will get the April jobs report on Friday with estimates near +400,000 jobs, so along with the Fed rate hike and more earnings coming in every day, it's a pretty busy week for stocks.
The S&P 500 (C-fund) was up about a half of a percent which was off the highs and made for a mediocre at best follow through day after Monday's positive reversal. We might give it a pass for doing so with the rate hike on deck today as investors may be getting a little nervous. The chart looks bad over all and the bear market may linger a lot longer, but it has been punished quite a bit since the March 29 high and could be due for some short-term relief.
DWCPF (S-fund / small caps) made its way back above that resistance line drawn from the February and March lows. It is also back inside that trading channel but can it climb back toward the top, or will the Fed fuel a breakdown? That doesn't help you, but that's what most investors are pondering as well, including some of the best money managers in the world. What next?
The EFA (I-fund) had a nice day with the dollar dipping down a bit, but I wanted to take a look at the Japanese Nikkei Index, which is a large part of our I-fund. It has been dipping since its previous market peak in March, but since then it has created a bullish looking flag formation. It is up testing its 50-day EMA and that could be a good tell. If it can get above that, the next test would be the top of the flag, which it would have to deal with eventually if it does breakout.
BND (bonds / F-fund) had a modest bounce yesterday, but it remains an ugly chart. The Fed could shake things up today but more recently the bond market has been leading the Fed.
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Thanks for reading. We'll see you back here tomorrow.
Tom Crowley
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 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.
