Stocks opened higher on Thursday despite a hotter than expected CPI report. Because the inflationary numbers were mostly concentrated in shelter, like rent and hotels, the market wasn't overly concerned, but later a weaker than expected bond auction sent yields higher, and that flipped everything over. By the close we saw moderate losses in the big three indices, but the broader and smaller indices took a much bigger hit. Bonds were down sharply as yields and the dollar rallied.
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Here's a blurry chart showing the increase in rents and hotel lodging, which was the drag on the CPI, and probably not too much to be worried about. As a matter of fact the chances of a Fed rate hike on November 1st went from 8.5% on Wednesday, to 11.8% yesterday so there's not too much concern that this report will change the Fed's mind about raising rates.
The issue yesterday was a weak midday long end (30 year) Bond auction that turned yields and the dollar up sharply and that flipped stocks over, as we saw often in September. It could be a temporary gap fill attempt after the Monday bond market holiday, but we'll see.
The losses in the S&P 500 were modest but the large tech stocks helped keep the large cap indices buoyant because internally the damage was more serious with declining trading volume almost 5 to 1 over advancing volume.
The Russell 2000 lost 2.2% on the day, dragging down the S-fund, and the Equal Weighted S&P 500 gave up 1.25% despite the S&P 500 (same 500 stocks but weighted more heavily in those big tech stocks) lost only 0.62%.
The action so far isn't too concerning, despite failures at key resistance levels. As we talked about yesterday, the indices had a big run off the lows and the resistance was going to be tough, and we often see pullbacks after a PMO (momentum) indicator crossover, as it is a sign of being short-term overbought. The crossover in late August was big failure but the action earlier this year is more typical of a crossover. That is, a small pullback that gets bought again.
With so many people still quite bearish and underinvested, I would suspect the dips to be shallow, but of course if the geological events escalate or other economic data comes in unfavorable, than that would change the narrative.
Other than that, Wall Street will brace for the 3rd quarter earnings reports to start rolling out with some banks reporting today. The bigger market moving big tech companies start reporting later in the month and into early November.
The S&P 500 (C-fund) chart was posted above with the PMO (Price Momentum Indicator) but here's a more zoomed in look at the action. It failed again at the 50-day EMA, but it did bounce yesterday afternoon to help it close back above the 20-day EMA and the old red neckline of the head and shoulders pattern. The action feels bullish, but it wouldn't take much for things to go wrong, especially if the small caps can't snap out of their funk.
DWCPF (S-fund, small caps) is struggling with that resistance. There was some late buying as we know dip buyers are lurking, and that old gap area may give some folks who missed the recent rally, another opportunity to do some buying near the lows. Will they take it?
The EFA (I-fund) also slammed into resistance and pulled back. That's not atypical, especially with that open gap left to fill, but its back below that descending resistance after another failed breakout. The strength in the dollar yesterday did not help, and this may all hinge on how strong that counter rally in the dollar becomes.
BND (bonds / F-fund) got slammed again after the weak bond auction. Yet another gap below to fill and a double bottom near 68.50. At some point bonds (F-fund) have to be considered over the G-fund if you don't like stocks, but you also take on risk in the F-fund where you don't in the G-fund.
Thanks so much for reading! Have a great weekend!
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
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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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Here's a blurry chart showing the increase in rents and hotel lodging, which was the drag on the CPI, and probably not too much to be worried about. As a matter of fact the chances of a Fed rate hike on November 1st went from 8.5% on Wednesday, to 11.8% yesterday so there's not too much concern that this report will change the Fed's mind about raising rates.
The issue yesterday was a weak midday long end (30 year) Bond auction that turned yields and the dollar up sharply and that flipped stocks over, as we saw often in September. It could be a temporary gap fill attempt after the Monday bond market holiday, but we'll see.
The losses in the S&P 500 were modest but the large tech stocks helped keep the large cap indices buoyant because internally the damage was more serious with declining trading volume almost 5 to 1 over advancing volume.
The Russell 2000 lost 2.2% on the day, dragging down the S-fund, and the Equal Weighted S&P 500 gave up 1.25% despite the S&P 500 (same 500 stocks but weighted more heavily in those big tech stocks) lost only 0.62%.
The action so far isn't too concerning, despite failures at key resistance levels. As we talked about yesterday, the indices had a big run off the lows and the resistance was going to be tough, and we often see pullbacks after a PMO (momentum) indicator crossover, as it is a sign of being short-term overbought. The crossover in late August was big failure but the action earlier this year is more typical of a crossover. That is, a small pullback that gets bought again.
With so many people still quite bearish and underinvested, I would suspect the dips to be shallow, but of course if the geological events escalate or other economic data comes in unfavorable, than that would change the narrative.
Other than that, Wall Street will brace for the 3rd quarter earnings reports to start rolling out with some banks reporting today. The bigger market moving big tech companies start reporting later in the month and into early November.
The S&P 500 (C-fund) chart was posted above with the PMO (Price Momentum Indicator) but here's a more zoomed in look at the action. It failed again at the 50-day EMA, but it did bounce yesterday afternoon to help it close back above the 20-day EMA and the old red neckline of the head and shoulders pattern. The action feels bullish, but it wouldn't take much for things to go wrong, especially if the small caps can't snap out of their funk.
DWCPF (S-fund, small caps) is struggling with that resistance. There was some late buying as we know dip buyers are lurking, and that old gap area may give some folks who missed the recent rally, another opportunity to do some buying near the lows. Will they take it?
The EFA (I-fund) also slammed into resistance and pulled back. That's not atypical, especially with that open gap left to fill, but its back below that descending resistance after another failed breakout. The strength in the dollar yesterday did not help, and this may all hinge on how strong that counter rally in the dollar becomes.
BND (bonds / F-fund) got slammed again after the weak bond auction. Yet another gap below to fill and a double bottom near 68.50. At some point bonds (F-fund) have to be considered over the G-fund if you don't like stocks, but you also take on risk in the F-fund where you don't in the G-fund.
Thanks so much for reading! Have a great weekend!
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.
