The power of the Federal Reserve. After a three month rally that started in late October during earnings season and an FOMC meeting on November 1st, the Fed flipped the switch and may have ended that rally. Either that or it was an excuse for a little profit taking. The losses were steep as saw 1% to more than 2% losses in many of the indices. Interestingly, yields were down as Powell was happy with the progress of fighting inflation, but the dollar rallied late to turn an early loss into a gain to put pressure on prices.
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The Fed did indicate that interest rates are likely coming down this year, but maybe not as soon as investors had thought. It was becoming common knowledge that the market was pricing in too many rate cuts for this year and stocks (other than the magnificent 7) did consolidate for much of January.
Yesterday, the market got the full wake up call. After the press conference the probability of an interest rate cut at the March meeting went from 60% to 35% and that, on top of the Microsoft / Alphabet earnings reaction, was enough to slam the indices down. The index charts don't look bad yet but it will all depend on the follow through in the next couple of days.
Microsoft was actually positive in early trading yesterday but even before the Fed announcement, someone pulled the plug on MSFT and the negative outside reversal day was born. The Fed just added to the pain. Still, this had come a long way in a short time, it remains above its 20-day EMA and the breakout area may just need to be retested.
This Fed meeting chart is the same that I posted yesterday and as we talked about, often the Fed can change the direction of the market on a dime. It did so in late October / early November and it's possible it did it again, but we all know that FOMC days are volatile and it is what happens in the days following that really tells the story.
The S&P 500 (C-fund) chart took a big hit but technically there was very little damage done. Clearly this chart was due for some kind of a pullback as it danced below the rising resistance line and top of a trading channel, but after the sharp pullback the integrity of the trend comes into play and we'll get more answers in the coming days. We've seen a few of these shake out days (blue arrows) during the 3-month rally that turned out to be fake outs and buying opportunities.
Talk about a fake out -- the S-fund pulled back after the Fed policy statement announcement at noon ET, but once the Powell's press conference got started, it actually moved up sharply and went into positive territory for the day. However, as he continued to take questions it was becoming more clear that a March rate cut was not in the cards and things went south again in a hurry. It went from positive to down over 2% in just over an hour.
S-fund on Wednesday:
I was surprised to see the yield on the 10-year Treasury down sharply, confirming Tuesday's breakdown below the 200-day EMA and the short-term rising support line. The surprise was that small caps were down so much given this drop in yields.
The dollar was actually down in the morning but it popped higher after the Fed decision and that added to the pressure on stocks. The I-fund side stepped some of the damage since most of the fireworks came after the overseas markets closed.
But back to the decline in yields -- BND (bonds, F-fund) broke out on the news and whether that was a play on the safe haven aspect of bonds, or because what the Fed said sent yields lower, I'm not 100% sure because stocks and bonds had been moving together until yesterday, especially the small caps and bonds. So this bull flag broke out to the upside, but the bull flags on the S and I-fund charts, as you'll see down below, did not.
Given the action in the bond market, and the fact that the charts are still intact technically tells me that we don't know yet - or at least I don't know yet - what the ramifications are going to end up being after this Fed meeting. We have more big earnings coming out over the next couple of days, and we get the January jobs report on Friday, so there are a few more catalysts before we know if the Fed has helped put in a temporary top, or not.
DWCPF (S-fund) was down sharply after having such a good start to the week, but yesterday's negative reversal did fill that open gap from January 22, which is always good to see to get it out of the way, but is the next step down to the 50-day EMA, bottom of the bull flag, or was filling the gap its only intent in yesterday's selling?
The EFA (I-fund) was breaking out to new highs for the year before the Fed flipped the sinking dollar around and put pressure on the EAFE fund. Of course the overseas markets were closed when all of this went down so it will be interesting to how much of yesterday afternoon's action will be considered when the TSP (which hasn't posted the share prices as of this writing) posts its I-fund price for the day. This looks like it wants to breakout to the upside, as it did temporarily, but a little more backing and filling at a triple top could happen, although triple tops normally breakout more often then they fail.
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.
[TABLE="align: center"]
[TR]
[TD="align: center"]
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[TD="width: 338, align: center"] Daily TSP Funds Return
[TR]
[TD="align: right"][/TD]
[/TR]
[/TABLE]
[/TD]
[/TR]
[/TABLE]
The Fed did indicate that interest rates are likely coming down this year, but maybe not as soon as investors had thought. It was becoming common knowledge that the market was pricing in too many rate cuts for this year and stocks (other than the magnificent 7) did consolidate for much of January.
Yesterday, the market got the full wake up call. After the press conference the probability of an interest rate cut at the March meeting went from 60% to 35% and that, on top of the Microsoft / Alphabet earnings reaction, was enough to slam the indices down. The index charts don't look bad yet but it will all depend on the follow through in the next couple of days.
Microsoft was actually positive in early trading yesterday but even before the Fed announcement, someone pulled the plug on MSFT and the negative outside reversal day was born. The Fed just added to the pain. Still, this had come a long way in a short time, it remains above its 20-day EMA and the breakout area may just need to be retested.
This Fed meeting chart is the same that I posted yesterday and as we talked about, often the Fed can change the direction of the market on a dime. It did so in late October / early November and it's possible it did it again, but we all know that FOMC days are volatile and it is what happens in the days following that really tells the story.
The S&P 500 (C-fund) chart took a big hit but technically there was very little damage done. Clearly this chart was due for some kind of a pullback as it danced below the rising resistance line and top of a trading channel, but after the sharp pullback the integrity of the trend comes into play and we'll get more answers in the coming days. We've seen a few of these shake out days (blue arrows) during the 3-month rally that turned out to be fake outs and buying opportunities.
Talk about a fake out -- the S-fund pulled back after the Fed policy statement announcement at noon ET, but once the Powell's press conference got started, it actually moved up sharply and went into positive territory for the day. However, as he continued to take questions it was becoming more clear that a March rate cut was not in the cards and things went south again in a hurry. It went from positive to down over 2% in just over an hour.
S-fund on Wednesday:
I was surprised to see the yield on the 10-year Treasury down sharply, confirming Tuesday's breakdown below the 200-day EMA and the short-term rising support line. The surprise was that small caps were down so much given this drop in yields.
The dollar was actually down in the morning but it popped higher after the Fed decision and that added to the pressure on stocks. The I-fund side stepped some of the damage since most of the fireworks came after the overseas markets closed.
But back to the decline in yields -- BND (bonds, F-fund) broke out on the news and whether that was a play on the safe haven aspect of bonds, or because what the Fed said sent yields lower, I'm not 100% sure because stocks and bonds had been moving together until yesterday, especially the small caps and bonds. So this bull flag broke out to the upside, but the bull flags on the S and I-fund charts, as you'll see down below, did not.
Given the action in the bond market, and the fact that the charts are still intact technically tells me that we don't know yet - or at least I don't know yet - what the ramifications are going to end up being after this Fed meeting. We have more big earnings coming out over the next couple of days, and we get the January jobs report on Friday, so there are a few more catalysts before we know if the Fed has helped put in a temporary top, or not.
DWCPF (S-fund) was down sharply after having such a good start to the week, but yesterday's negative reversal did fill that open gap from January 22, which is always good to see to get it out of the way, but is the next step down to the 50-day EMA, bottom of the bull flag, or was filling the gap its only intent in yesterday's selling?
The EFA (I-fund) was breaking out to new highs for the year before the Fed flipped the sinking dollar around and put pressure on the EAFE fund. Of course the overseas markets were closed when all of this went down so it will be interesting to how much of yesterday afternoon's action will be considered when the TSP (which hasn't posted the share prices as of this writing) posts its I-fund price for the day. This looks like it wants to breakout to the upside, as it did temporarily, but a little more backing and filling at a triple top could happen, although triple tops normally breakout more often then they fail.
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.
