After the pre-market CPI report was released we saw the start of what looked like another Turnaround Tuesday. The problem was the gap up open gave the bears a reason to push the indices back down, to fill that gap, so the turnaround turned back down. The Dow was up 362-points at its high and ended the day down 88-points, which was actually more than 100-point off its low as well. The S&P 500 hit a wall of resistance at its highs before flipping over. Bonds were up as yields came off their highs. The price of oil moved back over $100 a barrel.
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The small caps (Russell 2000) and the Transports were again the leaders as both held onto small gains, despite reversing well off their highs with the other indices. The IWM is just below some rising support with a long way to go if it is going to test the 2022 lows. It tried to fill its open gap near 202.50 yesterday but didn't quite get there.
The Transportation Index was also up, and that's two days in a row, but the chart has some issues as it failed at the long term 300-day moving average (orange) while creating a bear flag in the process.
We get the PPI (producer price index) on Wednesday morning before the opening bell, and it will be equally key, but investors saw what happened yesterday so they may be shy about jumping on any hot or weak report.
The market action yesterday is the kind of action that can be discouraging to the bulls who may have thought that the early rally after the CPI was putting in a bottom right at the 200-day EMA. But when the rug got pulled out from under them it can cause some "I give up" capitulation type of sentiment and that can happen just before another relief rally is ready to show up. Rather than an early rally after the PPI, the bulls may be better off seeing an early sell off that runs out of steam and reverses up later in the day.
The S&P 500 (C-fund) was up early but failed at key resistance before flipping over and retesting the 200-day EMA. It closed just below that average yesterday and now finds itself in that area (red rectangle) that has seen some chopping around before leaving the area. Perhaps a test of the lower end of that range (~4300) would take out some stops and create a panic low. The PMO crossover is a bad sign for the intermediate-term, but it can also precede a short-term oversold relief rally.
DWCPF (S-fund / small caps) also gave up a big gain to close slightly negative, which showed some relative strength compared the large caps, but it was still poor action. It is at some support right now, but that open gap just below 1850 is always a potential target, as is the double bottom near 1800.
The EFA (I-fund) had to deal with another rally and new high in the dollar, and that was why this one was the lagging fund yesterday. There is an open gap near 70, which seems to be an area that has a lot of pull with that large gap from March there as well. The March gap was filled but they can still be a draw.
BND (Bonds / F-fund) had an positive day and while this chart looks awful, it has two things going for it - one short-term and one long-term. The top of the trading channel is more than 1% above the current level. And, as we talked above up top, bonds are hitting a very long term bullish support line.
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
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Thanks 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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We figured the CPI report could be a market mover, but it turned out to be able to move the market in both directions. Initially stocks rallied strongly with gains over 1% and even 2% in some indices, before they hit the wall.
In the S&P 500 the wall was where the descending resistance line met the top of Monday's open gap and the 50-day EMA. It hit that and rolled right over. It's not as easy to see on this chart but there was one of those stealth gaps (my term) created on the open between Monday's close of 4413 and Tuesday's open near 4438. That 25 point gap is now filled so the bulls don't have to worry about it, but they had to deal with it yesterday.
The Yield on the 10-year Treasury was finally down after 7 straight days of gains. The yield hit a longer term resistance line this week and that will bring with it an interesting test of this rally. And if yields do pull back, bond prices would rally and you can see the long-term chart of AGG chart below, which is similar to our F-fund, is at the same time hitting some long term support. Bonds have been the one fund to avoid lately, but this is an intriguing development.In the S&P 500 the wall was where the descending resistance line met the top of Monday's open gap and the 50-day EMA. It hit that and rolled right over. It's not as easy to see on this chart but there was one of those stealth gaps (my term) created on the open between Monday's close of 4413 and Tuesday's open near 4438. That 25 point gap is now filled so the bulls don't have to worry about it, but they had to deal with it yesterday.
The small caps (Russell 2000) and the Transports were again the leaders as both held onto small gains, despite reversing well off their highs with the other indices. The IWM is just below some rising support with a long way to go if it is going to test the 2022 lows. It tried to fill its open gap near 202.50 yesterday but didn't quite get there.
The Transportation Index was also up, and that's two days in a row, but the chart has some issues as it failed at the long term 300-day moving average (orange) while creating a bear flag in the process.
We get the PPI (producer price index) on Wednesday morning before the opening bell, and it will be equally key, but investors saw what happened yesterday so they may be shy about jumping on any hot or weak report.
The market action yesterday is the kind of action that can be discouraging to the bulls who may have thought that the early rally after the CPI was putting in a bottom right at the 200-day EMA. But when the rug got pulled out from under them it can cause some "I give up" capitulation type of sentiment and that can happen just before another relief rally is ready to show up. Rather than an early rally after the PPI, the bulls may be better off seeing an early sell off that runs out of steam and reverses up later in the day.
The S&P 500 (C-fund) was up early but failed at key resistance before flipping over and retesting the 200-day EMA. It closed just below that average yesterday and now finds itself in that area (red rectangle) that has seen some chopping around before leaving the area. Perhaps a test of the lower end of that range (~4300) would take out some stops and create a panic low. The PMO crossover is a bad sign for the intermediate-term, but it can also precede a short-term oversold relief rally.
DWCPF (S-fund / small caps) also gave up a big gain to close slightly negative, which showed some relative strength compared the large caps, but it was still poor action. It is at some support right now, but that open gap just below 1850 is always a potential target, as is the double bottom near 1800.
The EFA (I-fund) had to deal with another rally and new high in the dollar, and that was why this one was the lagging fund yesterday. There is an open gap near 70, which seems to be an area that has a lot of pull with that large gap from March there as well. The March gap was filled but they can still be a draw.
BND (Bonds / F-fund) had an positive day and while this chart looks awful, it has two things going for it - one short-term and one long-term. The top of the trading channel is more than 1% above the current level. And, as we talked above up top, bonds are hitting a very long term bullish support line.
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 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.
