Stocks open slightly higher on Monday morning but the buyers were lying in wait, and whether it was algorithmic trading or just FOMO chasers, it added up to a big day for most of the stock indices by the close. The Dow gained 190-points and the S&P 500 and Nasdaq are making new 2023 closing highs. Small caps led early but the large caps caught up and surpassed them before the day was done. Bonds and the dollar were up.
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As we get closer to Wednesday's FOMC meeting and decision on interest rates, it is clear that the market is pricing in, not only a pause at this meeting, but perhaps word that the Fed may be done raising for the year. I don't think that is the conventional wisdom which may be why this buy the rumor rally may be vulnerable to a sell the news reaction, especially if the Fed doesn't give a Goldilocks policy statement.
That said, momentum is a strong force. However, I find myself getting more bearish as stocks push higher, but we've seen this movie before as stocks can often move higher much longer than we'd believe is reasonable. For that reason I have kept money in stocks, although I have been lightening up. I could take more off the table but I just don't know when the timing will be right. Many of the indicators I follow are waving red flags but until the index charts tell us it's over, and perhaps that happens after the Fed, selling is pure speculation. I like to speculate but it is easy to be wrong.
Unless you really dig deep it can be very tough to know when rallies will or "should" end. I like to look back history to get ideas about what is possible or maybe more probable.
One of our forum members posted a link to this article that I thought was interesting. I lived and invested during the dot com internet bubble rally and bust, and unless you lived through it, not only is it tough to imagine the volatility that we had back then, but also how quickly things can change.
The article is called, "This Market Reminds Me of 2000" by Jeff Clark. The images tell the story as we saw a 38% decline in the Nasdaq off the early peak, but that was followed by a powerful 40% rally off the lows until the next leg down started several months later.
And guess what? The Nasdaq is currently 40% off its lows following its 38% decline in 2022.
"The more this bear market has stretched out, the more parallels there are with past crashes. Specifically, the markets right now are starting to look a lot like they did during the dot com sell-off."
Source: https://www.jeffclarktrader.com/market-minute/this-market-reminds-me-of-2000/
Is it different this time?
The Dow Transportation Index - a market leader and good indicator of economic conditions, broke out above resistance last week, and yesterday it did a full retest of the breakout area and held, bouncing off that old resistance and closing up and near the highs of the day. That's a good sign.
With the S&P 500 and Nasdaq now both at 52-week highs, it's easy to be bullish as the indices flew past resistance. Whether these prices are justified or not, I don't know, but there is now a lot of gains being made in portfolios so if the Fed doesn't deliver this week, we could see a rush of profit taking. Whether that triggers more dip buyers or a change in character in the market (peak?) it's tough to say, but there are good arguments on both sides.
A couple of things have changed in recent weeks and one is that investor sentiment is getting a lot more extreme on the bullish side than it had been, which could be a warning. The other is that we may be in a new AI driven super-cycle, similar to what the internet did to trigger the massive Dot Com rally in the late 1990's.
The CPI report comes out before the opening bell this morning.
The S&P 500 (C-fund) ignored the negative reversal day on Friday and blasted off to another new high on Monday. There's more resistance in the way, but during this recent rally, that hasn't been much of an issue. However, if the Fed is not as dovish as investors are expecting this week, a trip down to the lower end of the two trading channels drawn below is always a possibility.
The DWCPF (S-fund) has had a really good June and recent consolidating action may have created a bull flag, but like the other indices, it is vulnerable to Fed surprise or even a "sell the news" reaction to whatever happens on Wednesday. There's little reward for those who don't take risks, but little risk for those who take profits.
EFA (I-fund) was up but lagged a bit yesterday, perhaps because of a bump up in the dollar. There's several of open gaps to lure this in either direction, but right now the bulls seem to be in control. However, there's a lot of resistance in the 72.20 area, and the dollar is in bull flag, and that could put some pressure on the I-fund if it breaks out.
BND (Bonds / F-fund) was up despite a rally in the 10-year Treasury Yield, but yields were down in many of the longer term bonds sending bond prices higher. Technically however, this still looks vulnerable.
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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[/TR]
[/TABLE]
[/TD]
[/TR]
[/TABLE]
As we get closer to Wednesday's FOMC meeting and decision on interest rates, it is clear that the market is pricing in, not only a pause at this meeting, but perhaps word that the Fed may be done raising for the year. I don't think that is the conventional wisdom which may be why this buy the rumor rally may be vulnerable to a sell the news reaction, especially if the Fed doesn't give a Goldilocks policy statement.
That said, momentum is a strong force. However, I find myself getting more bearish as stocks push higher, but we've seen this movie before as stocks can often move higher much longer than we'd believe is reasonable. For that reason I have kept money in stocks, although I have been lightening up. I could take more off the table but I just don't know when the timing will be right. Many of the indicators I follow are waving red flags but until the index charts tell us it's over, and perhaps that happens after the Fed, selling is pure speculation. I like to speculate but it is easy to be wrong.
Unless you really dig deep it can be very tough to know when rallies will or "should" end. I like to look back history to get ideas about what is possible or maybe more probable.
One of our forum members posted a link to this article that I thought was interesting. I lived and invested during the dot com internet bubble rally and bust, and unless you lived through it, not only is it tough to imagine the volatility that we had back then, but also how quickly things can change.
The article is called, "This Market Reminds Me of 2000" by Jeff Clark. The images tell the story as we saw a 38% decline in the Nasdaq off the early peak, but that was followed by a powerful 40% rally off the lows until the next leg down started several months later.
And guess what? The Nasdaq is currently 40% off its lows following its 38% decline in 2022.
"The more this bear market has stretched out, the more parallels there are with past crashes. Specifically, the markets right now are starting to look a lot like they did during the dot com sell-off."
Source: https://www.jeffclarktrader.com/market-minute/this-market-reminds-me-of-2000/
Is it different this time?
The Dow Transportation Index - a market leader and good indicator of economic conditions, broke out above resistance last week, and yesterday it did a full retest of the breakout area and held, bouncing off that old resistance and closing up and near the highs of the day. That's a good sign.
With the S&P 500 and Nasdaq now both at 52-week highs, it's easy to be bullish as the indices flew past resistance. Whether these prices are justified or not, I don't know, but there is now a lot of gains being made in portfolios so if the Fed doesn't deliver this week, we could see a rush of profit taking. Whether that triggers more dip buyers or a change in character in the market (peak?) it's tough to say, but there are good arguments on both sides.
A couple of things have changed in recent weeks and one is that investor sentiment is getting a lot more extreme on the bullish side than it had been, which could be a warning. The other is that we may be in a new AI driven super-cycle, similar to what the internet did to trigger the massive Dot Com rally in the late 1990's.
The CPI report comes out before the opening bell this morning.
The S&P 500 (C-fund) ignored the negative reversal day on Friday and blasted off to another new high on Monday. There's more resistance in the way, but during this recent rally, that hasn't been much of an issue. However, if the Fed is not as dovish as investors are expecting this week, a trip down to the lower end of the two trading channels drawn below is always a possibility.
The DWCPF (S-fund) has had a really good June and recent consolidating action may have created a bull flag, but like the other indices, it is vulnerable to Fed surprise or even a "sell the news" reaction to whatever happens on Wednesday. There's little reward for those who don't take risks, but little risk for those who take profits.
EFA (I-fund) was up but lagged a bit yesterday, perhaps because of a bump up in the dollar. There's several of open gaps to lure this in either direction, but right now the bulls seem to be in control. However, there's a lot of resistance in the 72.20 area, and the dollar is in bull flag, and that could put some pressure on the I-fund if it breaks out.
BND (Bonds / F-fund) was up despite a rally in the 10-year Treasury Yield, but yields were down in many of the longer term bonds sending bond prices higher. Technically however, this still looks vulnerable.
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.
