The CPI report on Wednesday showed more easing in prices and inflation and the stock market reacted as you might expect. The Dow gained 86-points, but because of some selling after the opening bell, that was 240-points off the morning highs. So the bulls were fully in charge in the morning after the emotional CPI report, but it was flat to down for the rest of the day as the indices get more and more stretched to the upside in the short-term. It wasn't a typical sell the news reaction because of the gains, but there was a little profit taking as the day wore on.
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The CPI, and the core CPI, both came in better (softer) than expected and inflation is certainly heading in the right direction, but that core CPI shows inflation still showed an increase of 4.8% year over year (prices are still rising, not falling), which is well above the Fed's 2% target. The lower CPI also sent the dollar sharply lower and that helped the I-fund lead the TSP funds yesterday.
Yes, despite the concerns that we all know about, stocks have rallied and as I have mentioned many times, the market does tend to look well down the road despite the emotional short-term moves after economic data and / or Fed FOMC meetings, etc. The rally this week obviously has something to do with the data that just came out, but it's not unusual to see stocks fall on good news, or rally on bad news. It's an indication of the strength or weakness of the market in general.
Clearly something positive is brewing, and since the S&P 500 and other indices bottomed in October of 2022 despite the being in the thick of Fed rate hikes and inflation, the market was well aware of this brewing before any of us were.
Bullish action does breed more bullish action as the news comes out that the market started to price in many months ago. But most of the bullish case news is now out. We know inflation is higher than normal, but it is coming down. We know the Fed is still raising rates, but there is an end in sight. We know a recession is possible but we're already pricing in a soft landing.
The question is, what will the market see 6 to 12 months down the road from now, that we may not see today? Recession, a boomerang of inflation -- who knows? But the charts are usually more reliable than news, data, and investors' reactions. If we were paying attention and not in perma-bear mode in 2022, we may have noticed that the bear market bottomed in October - right at the 2000-week moving average. Just like in late 2018. The COVID crash was a little different as emotional trading was off the charts, so the spike below the 200-day was steep, but brief.
So what are the charts showing us now? If you're stubbornly bullish and / or a buy and holder, you have been making good money in recent months, so you may want to look away for a minute as I go over some charts that may be trying to tell us something more bearish - at least in the short to intermediate term.
Besides most of the charts being well above their moving averages and stretched, I see that the Russell 2000 small caps index is currently hitting the top of a long ascending trading channel. The action is good and it's not against the law for indices to go further than they appear they should, and with resistance rising this is not an instant gratification situation. The IWM can ride up along the bottom of that resistance line for longer than feels comfortable to the bears. But it is what it is, the top of a channel.
Pulling out further, it wouldn't be the first huge rally in the small caps that ended, and ended badly, despite being in an environment where it felt like stocks could never go down. How did the bulls feel at the top in August of last year, or early February of this year? Probably similar to how they feel today.
Let's go out even further and we see that yes, this recent big rally has been fantastic, but it could be ("could be") the top of a giant bear flag.
How about those recently powerful Dow Transportation stocks? Same thing. Great action, and it could certainly go higher. But there's no guarantees. The great outlooks from the airline stocks has propelled much of this rally, but how long can it go up on the same news? Stocks don't go up or down everyday. They breathe in, and breathe out.
So the bulls have the momentum and that's true until it isn't. But you might want to ask yourself if you have gotten too bullish and getting drunk on the gains like many on the long side. I would be. There's no bell being rung that we are at a top, but euphoria may be starting to creep in, and that might be dangerous.
TSP Talk - 20 Years! - For those interested, I posted about TSP Talk being in its 20th year with our 20th anniversary coming up in January. This post is mostly about our forum members, specifically those who have been around since 2004, which I truly appreciate. I am so grateful to all of you who have supported us over the years. Thank you!
The S&P 500 (C-fund) posted impressive gains while opening a gap in the process. It hit some resistance after breaking out above that small cup and handle formation we talked about yesterday. As we can see from the larger C&H that started in February -- cup and handle formations are working. The two modest pullbacks in recent weeks that created the cup and candle were helpful but at some point a more meaning pullback to the 4200 area could set up and even bigger move because, without some shaking out, support gets very thin.
The EFA (I-fund) gapped up again and nearly filled the gap up by 73.40. The gap down in the dollar (UUP) was a big benefit here, so if that gaps above 28 on UUP gets filled the coming days, it could help fill that gap down near 71.70 on the EFA .
BND (F-fund) gapped up as well as softer economic data sent yields lower, raising the prices of bonds. This chart may be at some still resistance so the upside may get tougher from here.
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.
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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The CPI, and the core CPI, both came in better (softer) than expected and inflation is certainly heading in the right direction, but that core CPI shows inflation still showed an increase of 4.8% year over year (prices are still rising, not falling), which is well above the Fed's 2% target. The lower CPI also sent the dollar sharply lower and that helped the I-fund lead the TSP funds yesterday.
Yes, despite the concerns that we all know about, stocks have rallied and as I have mentioned many times, the market does tend to look well down the road despite the emotional short-term moves after economic data and / or Fed FOMC meetings, etc. The rally this week obviously has something to do with the data that just came out, but it's not unusual to see stocks fall on good news, or rally on bad news. It's an indication of the strength or weakness of the market in general.
Clearly something positive is brewing, and since the S&P 500 and other indices bottomed in October of 2022 despite the being in the thick of Fed rate hikes and inflation, the market was well aware of this brewing before any of us were.
Bullish action does breed more bullish action as the news comes out that the market started to price in many months ago. But most of the bullish case news is now out. We know inflation is higher than normal, but it is coming down. We know the Fed is still raising rates, but there is an end in sight. We know a recession is possible but we're already pricing in a soft landing.
The question is, what will the market see 6 to 12 months down the road from now, that we may not see today? Recession, a boomerang of inflation -- who knows? But the charts are usually more reliable than news, data, and investors' reactions. If we were paying attention and not in perma-bear mode in 2022, we may have noticed that the bear market bottomed in October - right at the 2000-week moving average. Just like in late 2018. The COVID crash was a little different as emotional trading was off the charts, so the spike below the 200-day was steep, but brief.
So what are the charts showing us now? If you're stubbornly bullish and / or a buy and holder, you have been making good money in recent months, so you may want to look away for a minute as I go over some charts that may be trying to tell us something more bearish - at least in the short to intermediate term.
Besides most of the charts being well above their moving averages and stretched, I see that the Russell 2000 small caps index is currently hitting the top of a long ascending trading channel. The action is good and it's not against the law for indices to go further than they appear they should, and with resistance rising this is not an instant gratification situation. The IWM can ride up along the bottom of that resistance line for longer than feels comfortable to the bears. But it is what it is, the top of a channel.
Pulling out further, it wouldn't be the first huge rally in the small caps that ended, and ended badly, despite being in an environment where it felt like stocks could never go down. How did the bulls feel at the top in August of last year, or early February of this year? Probably similar to how they feel today.
Let's go out even further and we see that yes, this recent big rally has been fantastic, but it could be ("could be") the top of a giant bear flag.
How about those recently powerful Dow Transportation stocks? Same thing. Great action, and it could certainly go higher. But there's no guarantees. The great outlooks from the airline stocks has propelled much of this rally, but how long can it go up on the same news? Stocks don't go up or down everyday. They breathe in, and breathe out.
So the bulls have the momentum and that's true until it isn't. But you might want to ask yourself if you have gotten too bullish and getting drunk on the gains like many on the long side. I would be. There's no bell being rung that we are at a top, but euphoria may be starting to creep in, and that might be dangerous.
TSP Talk - 20 Years! - For those interested, I posted about TSP Talk being in its 20th year with our 20th anniversary coming up in January. This post is mostly about our forum members, specifically those who have been around since 2004, which I truly appreciate. I am so grateful to all of you who have supported us over the years. Thank you!
The S&P 500 (C-fund) posted impressive gains while opening a gap in the process. It hit some resistance after breaking out above that small cup and handle formation we talked about yesterday. As we can see from the larger C&H that started in February -- cup and handle formations are working. The two modest pullbacks in recent weeks that created the cup and candle were helpful but at some point a more meaning pullback to the 4200 area could set up and even bigger move because, without some shaking out, support gets very thin.
The EFA (I-fund) gapped up again and nearly filled the gap up by 73.40. The gap down in the dollar (UUP) was a big benefit here, so if that gaps above 28 on UUP gets filled the coming days, it could help fill that gap down near 71.70 on the EFA .
BND (F-fund) gapped up as well as softer economic data sent yields lower, raising the prices of bonds. This chart may be at some still resistance so the upside may get tougher from here.
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.
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.
