Stocks opened lower on Wednesday but we saw dip buyers move in quickly and take the indices well off their lows, and into positive territory in some cases. But the selling resumed in the final hour of trading and the indies closed near their lows of the day. This is particularly important to the S&P 500 which is now sitting on key support levels. The Nasdaq lagged as the Fed's comments on continuing to raise rates hit the growth sector hard. Bonds shook off some early selling to close positive as yields were split with longer term yields falling, helping the F-fund.
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I looked at a bunch of charts after the market closed on Wednesday and rather than bore you with a lot of unspectacular findings, I'll sum it up this way: Whatever you think about the Fed and interest rates, inflation, the economy and the probabilities of a recession, the stock market is acting really well. Sure, we've had three down days in a row, but that's not uncommon after a big 4-week rally that pushed many of the charts and indicators past levels that are sustainable.
I'm not always as open minded as I should be when I have a direction in mind for stocks, but I can see the strength in the indices, which is happening despite all of the potential bad news, and that's usually a good sign for the stock market. It doesn't care what we think. It is reacting to countless traders, investors, news, data, etc., etc., and with that it is trending higher.
So, while we were due for a pullback, it is a pullback in a strong market. That could change, and it wouldn't surprise me if it did, but it hasn't changed yet so respect the trend, and trade accordingly.
After a three day pullback we are testing that trend as some more serious underlying support may start to get tested. But as you'll see in some of the charts, we could still get a meaningful correction without disturbing the bullish trend that has developed going back to March, and even back to October of 2022.
Because of how extended the charts had gotten, I currently have less than half of my account in the stock funds right now, but I will be willing to buy again at opportune times. This 3-day pullback in a bull market could turn out to be one of those opportunities, but again, there is more wiggle room if this modest pullback wants to turn into more of a correction - for whatever reason, so I'd be willing to sell more if that situation arises.
I'm not saying it is going to be easy - it almost never is, but as a market timer I weigh the information I have in front of me and try to make the best decision I can. It's not easy for the buy and holders either, even though they don't really have many decisions to make. They just get all the gains on the way up, and all the losses on the way down. Many argue that buy and hold is a better strategy, but it just doesn't fit my personality. You do you.
Despite FedEx reporting a disappointing earnings report and falling 2.5%, the Dow Transportation Index fought back from a sharp early loss to close flat on the day, so that was impressive. The prior peak has held as support so far on this recent pullback.
The problem recently is that over the years many had come to depend on the Dow Transpiration Index as a market leader, and the rest of the market has tended to follow. That hasn't really been the case recently, so I'm not sure if yesterday's impressive rebound and hold at support means that much to the C, S, and I-funds right now. Is the S&P 500 leading the Transports up, or is the underperformance of the Transports this year bound to lead the S&P 500 down? I wish I knew.
The dollar is at the bottom of a long term rising trading range (blue) so whether it finds support near 101 and rallies, or breaks down below that dashed blue support line, may determine a lot as far as stocks go - particularly the I-fund. The breakdown from that channel in 2020 was caused by the COVID stimulus so with most of that, and any easy money, behind us, this should be able to move higher. But if we start seeing recessionary evidence, the Fed and the government could go on another spending spree and pull it back down.
There's seven more trading days left in the quarter so we could see some odd movement as money mangers do some window dressing for their quarterly reports and rebalance their portfolios.
The S&P 500 (C-fund) has had a 3-day pullback and it is now testing a double dose of support. A breakdown would put it back within the red trading channel, which wouldn't be bad, but opens the door for testing lower support. The PMO indicator has made a higher high over April's peak, so that is a bullish indicator, but the daily reading is just starting to rollover so we'll have to keep an eye on that.
The DWCPF (S-fund) pulled back again so it remains below the double top and failed breakout area. 1720 looks like a possible pullback target if the selling continues, but the confluence of major support is closer to the 1670 - 1690 area so that's another possible target.
The EFA (I-fund ETF) was up slightly, most likely a gift from the dollar which was down sharply yesterday allowing the I-fund to outperform the US stocks funds. It is inside a large open gap right now so I would expect at least an intraday fill before this resumes upward.
BND (Bonds / F-fund) posted a positive outside reversal day yesterday, which is bullish for at least the short-term, and it also managed to close above the 200-day EMA for only the 2nd time in about 5 weeks. It's also back above the 50-day EMA.
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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I looked at a bunch of charts after the market closed on Wednesday and rather than bore you with a lot of unspectacular findings, I'll sum it up this way: Whatever you think about the Fed and interest rates, inflation, the economy and the probabilities of a recession, the stock market is acting really well. Sure, we've had three down days in a row, but that's not uncommon after a big 4-week rally that pushed many of the charts and indicators past levels that are sustainable.
I'm not always as open minded as I should be when I have a direction in mind for stocks, but I can see the strength in the indices, which is happening despite all of the potential bad news, and that's usually a good sign for the stock market. It doesn't care what we think. It is reacting to countless traders, investors, news, data, etc., etc., and with that it is trending higher.
So, while we were due for a pullback, it is a pullback in a strong market. That could change, and it wouldn't surprise me if it did, but it hasn't changed yet so respect the trend, and trade accordingly.
After a three day pullback we are testing that trend as some more serious underlying support may start to get tested. But as you'll see in some of the charts, we could still get a meaningful correction without disturbing the bullish trend that has developed going back to March, and even back to October of 2022.
Because of how extended the charts had gotten, I currently have less than half of my account in the stock funds right now, but I will be willing to buy again at opportune times. This 3-day pullback in a bull market could turn out to be one of those opportunities, but again, there is more wiggle room if this modest pullback wants to turn into more of a correction - for whatever reason, so I'd be willing to sell more if that situation arises.
I'm not saying it is going to be easy - it almost never is, but as a market timer I weigh the information I have in front of me and try to make the best decision I can. It's not easy for the buy and holders either, even though they don't really have many decisions to make. They just get all the gains on the way up, and all the losses on the way down. Many argue that buy and hold is a better strategy, but it just doesn't fit my personality. You do you.
Despite FedEx reporting a disappointing earnings report and falling 2.5%, the Dow Transportation Index fought back from a sharp early loss to close flat on the day, so that was impressive. The prior peak has held as support so far on this recent pullback.
The problem recently is that over the years many had come to depend on the Dow Transpiration Index as a market leader, and the rest of the market has tended to follow. That hasn't really been the case recently, so I'm not sure if yesterday's impressive rebound and hold at support means that much to the C, S, and I-funds right now. Is the S&P 500 leading the Transports up, or is the underperformance of the Transports this year bound to lead the S&P 500 down? I wish I knew.
The dollar is at the bottom of a long term rising trading range (blue) so whether it finds support near 101 and rallies, or breaks down below that dashed blue support line, may determine a lot as far as stocks go - particularly the I-fund. The breakdown from that channel in 2020 was caused by the COVID stimulus so with most of that, and any easy money, behind us, this should be able to move higher. But if we start seeing recessionary evidence, the Fed and the government could go on another spending spree and pull it back down.
There's seven more trading days left in the quarter so we could see some odd movement as money mangers do some window dressing for their quarterly reports and rebalance their portfolios.
The S&P 500 (C-fund) has had a 3-day pullback and it is now testing a double dose of support. A breakdown would put it back within the red trading channel, which wouldn't be bad, but opens the door for testing lower support. The PMO indicator has made a higher high over April's peak, so that is a bullish indicator, but the daily reading is just starting to rollover so we'll have to keep an eye on that.
The DWCPF (S-fund) pulled back again so it remains below the double top and failed breakout area. 1720 looks like a possible pullback target if the selling continues, but the confluence of major support is closer to the 1670 - 1690 area so that's another possible target.
The EFA (I-fund ETF) was up slightly, most likely a gift from the dollar which was down sharply yesterday allowing the I-fund to outperform the US stocks funds. It is inside a large open gap right now so I would expect at least an intraday fill before this resumes upward.
BND (Bonds / F-fund) posted a positive outside reversal day yesterday, which is bullish for at least the short-term, and it also managed to close above the 200-day EMA for only the 2nd time in about 5 weeks. It's also back above the 50-day EMA.
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.
