The stock market picked up some momentum yesterday with broad rally and the relief rally off the recent lows gets more respect as it closes in on the 2024 highs. The Dow is currently in a 7-day winning streak. The I-fund's index (EFA) actually made a new closing high yesterday. That's the good news. The questionable news may be that yesterday's trading volume on the S&P 500 was the lightest of the year, if you can believe that. Bond yields were up, then down, creating a negative outside reversal day on the 10-year yield.
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Whether its complacency or uncertainty, the lightest trading volume of the year may be investors trying to be patient, or still in disbelief. Mike Santoli of CNBC called it a procrastinators rally - people that were expecting the relief rally to fail (guilty!) who are now trying to catch up. Others, based on the light volume, may be watching the market like a deer caught in the headlights.
There's a lot of money to be made in a market that nobody thinks will go higher, but does. It's called "climbing the wall of worry." Technical analysis tends to be positive when stocks are rallying so the dip buyers and program traders are clearly back in buy mode. Perhaps that will only be true until the next wave of economic / inflation data changes that but outside of the technical wall climbing, eventually fundamentals kick in.
Many fundamentalists like a John Hussman or Warren Buffett, who look mainly at valuations rather than index charts, are seeing some red flags. Unfortunately for the pure fundamentalist stocks can continue to go higher despite overvalued conditions in the stocks market. They may eventually be right, but momentum keeps rolling until it stops and the market often gets extremely overvalued before there is a turn.
Warren Buffett is currently holding his largest cash position (and short-term Treasuries) ever because he says he can't find anything worth buying right now. His indicator, known as the Buffett Indicator, Buffett Index, or Buffett Ratio, compares the US market capitalization to the GDP. Here's where it stands right now (actually through the end of the 1st quarter):
Source: Buffett Indicator Valuation Model
The current 1.99 reading as of the end of March, has only been reached a few times over the last 75 years. The 2021 Covid stimulus driven rally led to the inflation and the bear market of 2022. Prior to that it was the dot com bubble in 2000. And then we have to go back to 1969 to find another reading of 2.0.
Here are the returns for the S&P 500 in the subsequent years.
They were lackluster at best for a three year return. Not shown is 2022 which had a loss of 18.11%, but 2023 bounced back with a gain of 26.29%.
Here's the weekly chart of the S&P 500 going back to 1999 showing where we are now vs. the most recent 2.0 extremely overvalued readings. Notice that both Covid, and the Covid stimulus triggered rally, pushed the S&P 500 out of its long-term trading channel.
Yesterday was interesting in that the 10-year Treasury Yield opened higher despite a weaker than expected jobless claims number, meaning there were more new jobless claims than expected, and the highest weekly amount since last August. But as we would expect, yields eventually fell on the weaker economic data. The stock market liked it because a weaker labor market is what the Fed is looking for to cut interest rates. The negative outside reversal day on the $TNX suggests lower yields are coming, but right now the 50-day EMA is still being tested as support.
The dollar was also down and in the same situation - below rising support but sitting on a key moving average.
The bulls are in charge and the bears are in need of a catalyst to change that.
The S&P 500 (C-fund) had another healthy gain yesterday, and once again the trading volume is drying up to 2024 lows, adding to the skepticism of the rally, but when a market is climbing a wall of worry, light volume may just be one of those worries. The chart is hitting the upper end of its channel and of course that channel is rising rapidly so it's not much resistance. The big resistance at this point would be a double top which is now only about 1% away.
DWCPF (S-fund) also rallied and the negative reversal in yields didn't hurt. This may make a move toward its 2024 highs but there is a little more resistance overhead at the top of that gap, which has been filled, but technically that gap could extend all the way up near 2060, where it closed on April 9.
The EFA (I-fund) crashed right through its old high. I would have expected some kind of pause at the double top, but the dollar was down sharply helping it move past the resistance.
BND (bonds / F-fund) had a nice day, and because the 10-year yield created a negative outside reversal day, this one has a positive outside reversal day, since they move counter to each other.
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
For more info our other premium services, please go here... www.tsptalk.com/premiums.html
Daily Market Commentary Archives
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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Whether its complacency or uncertainty, the lightest trading volume of the year may be investors trying to be patient, or still in disbelief. Mike Santoli of CNBC called it a procrastinators rally - people that were expecting the relief rally to fail (guilty!) who are now trying to catch up. Others, based on the light volume, may be watching the market like a deer caught in the headlights.
There's a lot of money to be made in a market that nobody thinks will go higher, but does. It's called "climbing the wall of worry." Technical analysis tends to be positive when stocks are rallying so the dip buyers and program traders are clearly back in buy mode. Perhaps that will only be true until the next wave of economic / inflation data changes that but outside of the technical wall climbing, eventually fundamentals kick in.
Many fundamentalists like a John Hussman or Warren Buffett, who look mainly at valuations rather than index charts, are seeing some red flags. Unfortunately for the pure fundamentalist stocks can continue to go higher despite overvalued conditions in the stocks market. They may eventually be right, but momentum keeps rolling until it stops and the market often gets extremely overvalued before there is a turn.
Warren Buffett is currently holding his largest cash position (and short-term Treasuries) ever because he says he can't find anything worth buying right now. His indicator, known as the Buffett Indicator, Buffett Index, or Buffett Ratio, compares the US market capitalization to the GDP. Here's where it stands right now (actually through the end of the 1st quarter):
Source: Buffett Indicator Valuation Model
The current 1.99 reading as of the end of March, has only been reached a few times over the last 75 years. The 2021 Covid stimulus driven rally led to the inflation and the bear market of 2022. Prior to that it was the dot com bubble in 2000. And then we have to go back to 1969 to find another reading of 2.0.
Here are the returns for the S&P 500 in the subsequent years.
They were lackluster at best for a three year return. Not shown is 2022 which had a loss of 18.11%, but 2023 bounced back with a gain of 26.29%.
Here's the weekly chart of the S&P 500 going back to 1999 showing where we are now vs. the most recent 2.0 extremely overvalued readings. Notice that both Covid, and the Covid stimulus triggered rally, pushed the S&P 500 out of its long-term trading channel.
Yesterday was interesting in that the 10-year Treasury Yield opened higher despite a weaker than expected jobless claims number, meaning there were more new jobless claims than expected, and the highest weekly amount since last August. But as we would expect, yields eventually fell on the weaker economic data. The stock market liked it because a weaker labor market is what the Fed is looking for to cut interest rates. The negative outside reversal day on the $TNX suggests lower yields are coming, but right now the 50-day EMA is still being tested as support.
The dollar was also down and in the same situation - below rising support but sitting on a key moving average.
The bulls are in charge and the bears are in need of a catalyst to change that.
The S&P 500 (C-fund) had another healthy gain yesterday, and once again the trading volume is drying up to 2024 lows, adding to the skepticism of the rally, but when a market is climbing a wall of worry, light volume may just be one of those worries. The chart is hitting the upper end of its channel and of course that channel is rising rapidly so it's not much resistance. The big resistance at this point would be a double top which is now only about 1% away.
DWCPF (S-fund) also rallied and the negative reversal in yields didn't hurt. This may make a move toward its 2024 highs but there is a little more resistance overhead at the top of that gap, which has been filled, but technically that gap could extend all the way up near 2060, where it closed on April 9.
The EFA (I-fund) crashed right through its old high. I would have expected some kind of pause at the double top, but the dollar was down sharply helping it move past the resistance.
BND (bonds / F-fund) had a nice day, and because the 10-year yield created a negative outside reversal day, this one has a positive outside reversal day, since they move counter to each other.
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
For more info our other premium services, please go here... www.tsptalk.com/premiums.html
Daily Market Commentary Archives
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.
