Yesterday we may have seen a microcosm of the market environment that we are currently in. The PPI report came in slightly hotter than expected but some of the finer points were closer to estimates and the market opened higher on the news. As the morning wore on we saw some profit taking knowing today's CPI report could make or break the relief rally. But, the heightened bearishness / fear leaves inventors underinvested, and the dip was bought during the afternoon trading. Stocks closed near the highs of the day and the bulls are in charge leading into today's key inflation data.
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The PPI report was slightly more inflationary than was expected. The stock market shook that off by the close but we did see some shorter term bond yields (3-month up to the 2-year) move up on the data, although the 7, 10, and 30-year Treasuries did close slightly lower helping the bonds (F-fund ) yesterday. The 10-year did find support at the 20-day average.
Now here comes the headline report and estimates for this morning's CPI and Core CPI are +0.04 and +0.03% respectively. The Core data is more in focus as the market shook off last month's rise in the CPI because the Core did slip lower.
The Fed has indicated that the rise in Treasury yields from July to early October may have helped them control inflation and we have seen a dramatic decrease in the probability of an interest rate hike at the November 1st FOMC meeting from 38% a month ago, to just a 8.5% chance as of yesterday. This has been helping the stock market find some footing off the recent lows.
The stock market has has some wind at its back for a change as the poor seasonality is making a turn for the better. We've seen yields and the dollar drop, and the price of oil is still moving lower despite the violence in the Middle East.
I still have some concerns about stubborn resistance on many of the index charts including the TSP fund charts in the bottom section, but some of the market leaders are also struggling including the Russell 2000 which was actually down yesterday, and the Dow Transportation Index, which closed above a descending trading channel but it is now dealing with the underside of some major moving averages which can be tough resistance when trying to come back through.
The Nasdaq 100 has blasted through resistance, but there may be one more obstacle that could make or break this big tech market leader. If it (QQQ, the Naz 100 ETF) can get above 375, it would be closing in on the 2023 highs already.
Oil is another one in a touch and go situation. It blasted higher on Monday after the attacks in the Middle East but has since resumed its decline off the late September highs. Yesterday's sharp decline filled in Monday's open gap, and now the 200-day EMA may get tested again. That 200 day average held in August but what will the bigger catalyst be going forward -- supply issues in the Middle east that could send prices higher, or decreasing demand if global economies are slowing?
This market feels like it wants to go higher, but a poor CPI and the overhead resistance could put a stop to that. Let's see how it goes.
The S&P 500 (C-fund) had an "inside day" yesterday as the high and low of the day were inside the high and low of Tuesday's action. That usually means more movement in the direction it has been going, but you can see that the 50-day EMA is in the way right now. It still hasn't even been able to reach up to fill the open gap near 4400. The CPI could open that gate or, if unfavorable, the resistance could continue to hold and perhaps put an end to the relief rally. The PMO crossover is a bullish intermediate-term sign for this chart, but those tend to occur at overbought levels that create short-term profit taking dips before going higher again. In late August it turned out worse than that but that was more of an exception than the rule.
DWCPF (S-fund, small caps) is at a wall of resistance and that may be why small caps are lagging the large caps right now. Someone needs to open that door or it could get swatted back down.
The EFA (I-fund) had a nice day but it too is going to have to battle overhead resistance. If the dollar can continue trending lower, it could help it break through. There's open gaps above and below so the battle is on.
BND (bonds / F-fund) has been the spark to the stock market rally as yields finally stopped going up for a few days. The CPI could change that but that is a nice looking double bottom near 68.50. Like everything else however, there's plenty of resistance just overhead.
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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The PPI report was slightly more inflationary than was expected. The stock market shook that off by the close but we did see some shorter term bond yields (3-month up to the 2-year) move up on the data, although the 7, 10, and 30-year Treasuries did close slightly lower helping the bonds (F-fund ) yesterday. The 10-year did find support at the 20-day average.
Now here comes the headline report and estimates for this morning's CPI and Core CPI are +0.04 and +0.03% respectively. The Core data is more in focus as the market shook off last month's rise in the CPI because the Core did slip lower.
The Fed has indicated that the rise in Treasury yields from July to early October may have helped them control inflation and we have seen a dramatic decrease in the probability of an interest rate hike at the November 1st FOMC meeting from 38% a month ago, to just a 8.5% chance as of yesterday. This has been helping the stock market find some footing off the recent lows.
The stock market has has some wind at its back for a change as the poor seasonality is making a turn for the better. We've seen yields and the dollar drop, and the price of oil is still moving lower despite the violence in the Middle East.
I still have some concerns about stubborn resistance on many of the index charts including the TSP fund charts in the bottom section, but some of the market leaders are also struggling including the Russell 2000 which was actually down yesterday, and the Dow Transportation Index, which closed above a descending trading channel but it is now dealing with the underside of some major moving averages which can be tough resistance when trying to come back through.
The Nasdaq 100 has blasted through resistance, but there may be one more obstacle that could make or break this big tech market leader. If it (QQQ, the Naz 100 ETF) can get above 375, it would be closing in on the 2023 highs already.
Oil is another one in a touch and go situation. It blasted higher on Monday after the attacks in the Middle East but has since resumed its decline off the late September highs. Yesterday's sharp decline filled in Monday's open gap, and now the 200-day EMA may get tested again. That 200 day average held in August but what will the bigger catalyst be going forward -- supply issues in the Middle east that could send prices higher, or decreasing demand if global economies are slowing?
This market feels like it wants to go higher, but a poor CPI and the overhead resistance could put a stop to that. Let's see how it goes.
The S&P 500 (C-fund) had an "inside day" yesterday as the high and low of the day were inside the high and low of Tuesday's action. That usually means more movement in the direction it has been going, but you can see that the 50-day EMA is in the way right now. It still hasn't even been able to reach up to fill the open gap near 4400. The CPI could open that gate or, if unfavorable, the resistance could continue to hold and perhaps put an end to the relief rally. The PMO crossover is a bullish intermediate-term sign for this chart, but those tend to occur at overbought levels that create short-term profit taking dips before going higher again. In late August it turned out worse than that but that was more of an exception than the rule.
DWCPF (S-fund, small caps) is at a wall of resistance and that may be why small caps are lagging the large caps right now. Someone needs to open that door or it could get swatted back down.
The EFA (I-fund) had a nice day but it too is going to have to battle overhead resistance. If the dollar can continue trending lower, it could help it break through. There's open gaps above and below so the battle is on.
BND (bonds / F-fund) has been the spark to the stock market rally as yields finally stopped going up for a few days. The CPI could change that but that is a nice looking double bottom near 68.50. Like everything else however, there's plenty of resistance just overhead.
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.
