It turned out to be a day of solid gains for the stock market but of course it was a lot more complicated than that as we saw the Dow futures go from up 1000-points after the CPI was released before the opening bell (up 707-points after the opening bell), back into negative territory during the trading day, and finally closing with a triple digit gain of 104-points. So unlike the huge rally after the prior CPI, this one failed a bit as it closed well off the highs. Would it have been better to see the Dow tumble at the open then close at +104? Probably from a technical standpoint, but there was chart cleaning to be done and some of that was accomplished, and then here comes the Fed and things can change quickly.
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The action was quite volatile yesterday while the charts did some cleaning up by testing the recent highs before pulling back and filling in this morning's huge gap that was opened. Then it settled somewhere in between although a lot closer to the lows of the day than the highs. The S&P was up 110-points at the morning highs and closed up "just" 29.
The CPI came in a little bit cooler than the estimates and that was music to investor's ears, as apparently everyone had their fingers on the buy button if the report showed less inflation than expected and less than last month. However, prices aren't the only thing the Fed is worried about as the resilient labor market has been a concern with wages staying stubbornly high.
A strong jobs market and higher wages sounds good for the economy, but not to the Fed who is looking to see signs that inflation is cooling, and a hot jobs market is one that could keep him hawkish.
The other problem for stocks is the impact of the rising interest rates, and to be clear, the Fed has not signaled any signs of halting interest rate hikes, let alone lowering them, so the economy still has a long way to go before digesting the issues caused by higher rates that will continue to go higher. Perhaps at a slower pace, but still rising.
The TSP stock funds have had a good start to the week after last week's debacle and one of the weaker starts to December that we had seen in a while. And, as we said, all of this leads to probably the most important catalyst of the month when the Fed announces what is assumed to be another 0.50% interest rate hike this afternoon, and even more important will be their outlook for future monetary policy: i.e. will they consider even smaller hikes at the next meeting, or need to keep them at 0.50%, etc.? Powell has said before that yields have to stay "higher for longer", so...
The market continues to expect a 0.50% increase today, with a 21% minority still expecting 0.75%. The 0.50% increase would put the Fed Funds Rate at 4.25% - 4.50% and James Bullard, the President of the Federal Reserve Bank of St. Louis, had mentioned last month that it could go to 5% to 7% before they are done.
It sounds like many of the old school economists like Bullard and Larry Summers believe that anything less could repeat the problems of the 1970s when inflation eased, then came right back with a vengeance after they stopped raising.
Of course raising too much could kill the economy, and meanwhile, as I mentioned the other day, Blackrock, the world's largest money manager, put out a headline last week saying, "Prepare For Recession 'Unlike Any Other'... And What Worked Before 'Won't Work Now'." Link to article
The bond market enjoyed the less inflationary CPI numbers as yields dropped sending bond prices and the F-fund higher, but look what happened to BND (bonds / F-fund) yesterday as it is now testing its 200-day moving average after the recent spike higher. Could this be a temporary road block for the bond market?
Here's the chart of the 10-year yield as it fell back into the wedge-like formation after Tuesday's failed breakout. We speculated yesterday that one of three things could happen yesterday. The result was: "- A sell off in yields that doesn't make it to the gap." This move in yields keeps the 2-year / 10-year yield curve inverted by 0.78%.
The dollar also broke down after spending the entire month dancing on top of that 200-day average.
The market leading Dow Transportation Index had a nasty negative reversal despite the slight gain on the day. You can see what happened when there was a positive reversal in November suggesting the reversal yesterday could lead to more downside. Of course the Fed is on deck and anything is possible, but look at that bull flag. So perhaps it will come back and fill in the lower end of the flag again before something bullish happens?
Did I mentioned that this is a quadruple witching expiration week as well? Can things get any more wild before the holidays? Next week things could quiet down and that's closer to when the official Santa Claus Rally tends to begin.
The S&P 500 (C-fund) shot straight up, and it had a 110-point gain at its highs and at one point later in the day it was nearly flat as the gap got filled. The 50-day EMA has been holding and the bear flag I was watching did not break down, but rather up as has been the case this year for some reason. It closed below the 200-day MA (orange) but 3-points above the 200-day EMA (blue.) It did close below the rising support line off the lows after breaking above it earlier, overhead resistance held at the top, and the open gap near 3800 remains open.
The DWCPF (S-fund) gained nearly 1% but it was not a pretty day. It remains in that range between 1625 and about 1720 which makes up part of a bull flag looking pattern, and there an open gap at 1600.
The EFA / I-fund led again as the overseas markets closed early and the dollar was crushed. Depending what the Fed says, there could be some pay back here in today's price since those overseas markets will price in the weak afternoon of trading in the U.S.
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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The action was quite volatile yesterday while the charts did some cleaning up by testing the recent highs before pulling back and filling in this morning's huge gap that was opened. Then it settled somewhere in between although a lot closer to the lows of the day than the highs. The S&P was up 110-points at the morning highs and closed up "just" 29.
The CPI came in a little bit cooler than the estimates and that was music to investor's ears, as apparently everyone had their fingers on the buy button if the report showed less inflation than expected and less than last month. However, prices aren't the only thing the Fed is worried about as the resilient labor market has been a concern with wages staying stubbornly high.
A strong jobs market and higher wages sounds good for the economy, but not to the Fed who is looking to see signs that inflation is cooling, and a hot jobs market is one that could keep him hawkish.
The other problem for stocks is the impact of the rising interest rates, and to be clear, the Fed has not signaled any signs of halting interest rate hikes, let alone lowering them, so the economy still has a long way to go before digesting the issues caused by higher rates that will continue to go higher. Perhaps at a slower pace, but still rising.
The TSP stock funds have had a good start to the week after last week's debacle and one of the weaker starts to December that we had seen in a while. And, as we said, all of this leads to probably the most important catalyst of the month when the Fed announces what is assumed to be another 0.50% interest rate hike this afternoon, and even more important will be their outlook for future monetary policy: i.e. will they consider even smaller hikes at the next meeting, or need to keep them at 0.50%, etc.? Powell has said before that yields have to stay "higher for longer", so...
The market continues to expect a 0.50% increase today, with a 21% minority still expecting 0.75%. The 0.50% increase would put the Fed Funds Rate at 4.25% - 4.50% and James Bullard, the President of the Federal Reserve Bank of St. Louis, had mentioned last month that it could go to 5% to 7% before they are done.
It sounds like many of the old school economists like Bullard and Larry Summers believe that anything less could repeat the problems of the 1970s when inflation eased, then came right back with a vengeance after they stopped raising.
Of course raising too much could kill the economy, and meanwhile, as I mentioned the other day, Blackrock, the world's largest money manager, put out a headline last week saying, "Prepare For Recession 'Unlike Any Other'... And What Worked Before 'Won't Work Now'." Link to article
The bond market enjoyed the less inflationary CPI numbers as yields dropped sending bond prices and the F-fund higher, but look what happened to BND (bonds / F-fund) yesterday as it is now testing its 200-day moving average after the recent spike higher. Could this be a temporary road block for the bond market?
Here's the chart of the 10-year yield as it fell back into the wedge-like formation after Tuesday's failed breakout. We speculated yesterday that one of three things could happen yesterday. The result was: "- A sell off in yields that doesn't make it to the gap." This move in yields keeps the 2-year / 10-year yield curve inverted by 0.78%.
The dollar also broke down after spending the entire month dancing on top of that 200-day average.
The market leading Dow Transportation Index had a nasty negative reversal despite the slight gain on the day. You can see what happened when there was a positive reversal in November suggesting the reversal yesterday could lead to more downside. Of course the Fed is on deck and anything is possible, but look at that bull flag. So perhaps it will come back and fill in the lower end of the flag again before something bullish happens?
Did I mentioned that this is a quadruple witching expiration week as well? Can things get any more wild before the holidays? Next week things could quiet down and that's closer to when the official Santa Claus Rally tends to begin.
The S&P 500 (C-fund) shot straight up, and it had a 110-point gain at its highs and at one point later in the day it was nearly flat as the gap got filled. The 50-day EMA has been holding and the bear flag I was watching did not break down, but rather up as has been the case this year for some reason. It closed below the 200-day MA (orange) but 3-points above the 200-day EMA (blue.) It did close below the rising support line off the lows after breaking above it earlier, overhead resistance held at the top, and the open gap near 3800 remains open.
The DWCPF (S-fund) gained nearly 1% but it was not a pretty day. It remains in that range between 1625 and about 1720 which makes up part of a bull flag looking pattern, and there an open gap at 1600.
The EFA / I-fund led again as the overseas markets closed early and the dollar was crushed. Depending what the Fed says, there could be some pay back here in today's price since those overseas markets will price in the weak afternoon of trading in the U.S.
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.
