April has started out on a bullish note, which is not uncommon, and we saw a solid rally on the second trading day of the month. The Dow gained 104-points but it was the tech heavy Nasdaq indices that performed best, perhaps thanks to Elon Musk, giving us flash back to the 2020 - 2021 bull market. Can it last, or has this just been a bear market rally? Bonds were up and the yield curve remains inverted.
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As we've talk about, we have an inverted 2/10 yield curve, and as you can see, all of the shorter term yields are returning more than the 10-year yield, so this suggests a good chance of a recession in the coming months, or even up to a year or more, and more importantly, even if we don't get a recession, the stock market does tend to eventually react as if there is one.
Going back 30+ years we have seen five 2/10 yield inversions and each time the S&P 500 moved to new highs, or near prior highs not long afterward, and those moves higher may be the phase that we are in now. But 4 of those 5 times led to a recession, and all 5 led to a meaningful declines in the stock market not long afterward, including the bear markets of the 2000 - 2002 dot com days, the financial crisis of 2008, and the Covid crash.
Another phase we are in now is being in the month of April, which is historically a good month for stocks, and the S&P just got out of the first two days with a decent gain, as seasonality chart suggested.
Chart provided courtesy of www.sentimentrader.com
The price of oil continues to be one of the major headlines to watch, and it was up sharply yesterday so the rally in stocks was interesting in that investors didn't seem too concerned about the 4% gain in oil up to $103. This is not what we've been used to this year.
Following up on the Transportation Index, which was pounded to the tune of nearly 5% on Friday - it started the day down another 1% in early trading before finding some support and closing the day relatively flat. The Transports are quite economically sensitive so if the broader market is going to hold onto its recent gains, I would think this one will have to make some kind of comeback, being that it tends to be one of the main market leaders.
I don't think we learned too much with the rally yesterday since the seasonality chart could have been part of the reason for the move up in stocks as money managers were likely buying back into some of the stocks they sold last week to get the losing positions off their first quarter reports. It's also a time when we see new pension money come into the market. The next few days may be a test of the market strength.
The S&P 500 (C-fund) has been performing well being up 10 of the last 14 trading days. It is trading near the top of a range and the question on many chart technicians is whether that will hold as resistance, and the fundamentalists are wondering if this rally has come too far too fast and is just a bear market rally destined to fail. Many of the bullish boxes have been checked with it trading above all of the key moving averages, so at this point, a move above last week's highs would be tough to ignore. If that happens the January high could get tested and as we've mentioned, would be par for the course after a 2/10 year yield curve inversion. It's what happened after that that is historically bearish.
The EFA (I-fund) was up but lagged the U.S. indices most likely because of the recent strength in the dollar. Why the dollar is holding up so well, I don't know for sure. It could be some hidden economic strength, it could be the Fed itinerary to raise rates all year, but whatever it is, the I-fund tends to lag the U.S. market when it happens.
BND (Bonds / F-fund) poked its head above that channel that I have been drawing for months. The prior breaks above it haven't lasted long, but eventually one might take and we may get some relief in bonds? When that will be, is the question.
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.
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We Nasdaq was up big with a little help from a 27% gain in Twitter after Elon Musk took a 9% stake in the company. Investors were happy to join in on the "risk on" action. Musk's other baby is Tesla which also had a strong day gaining 5.6% on the day so he was setting the tone for the rally in tech, which bled into many of the other indices.
The TSP small caps (S-fund) had a good day gaining 0.75% despite the small caps of the Russell 2000 lagging, as it was down most of the day before closing up just 0.16%. That 50-day EMA (purple) is doing a good job of holding this chart up.
The TSP small caps (S-fund) had a good day gaining 0.75% despite the small caps of the Russell 2000 lagging, as it was down most of the day before closing up just 0.16%. That 50-day EMA (purple) is doing a good job of holding this chart up.
As we've talk about, we have an inverted 2/10 yield curve, and as you can see, all of the shorter term yields are returning more than the 10-year yield, so this suggests a good chance of a recession in the coming months, or even up to a year or more, and more importantly, even if we don't get a recession, the stock market does tend to eventually react as if there is one.
Going back 30+ years we have seen five 2/10 yield inversions and each time the S&P 500 moved to new highs, or near prior highs not long afterward, and those moves higher may be the phase that we are in now. But 4 of those 5 times led to a recession, and all 5 led to a meaningful declines in the stock market not long afterward, including the bear markets of the 2000 - 2002 dot com days, the financial crisis of 2008, and the Covid crash.
Another phase we are in now is being in the month of April, which is historically a good month for stocks, and the S&P just got out of the first two days with a decent gain, as seasonality chart suggested.
Chart provided courtesy of www.sentimentrader.com
The price of oil continues to be one of the major headlines to watch, and it was up sharply yesterday so the rally in stocks was interesting in that investors didn't seem too concerned about the 4% gain in oil up to $103. This is not what we've been used to this year.
Following up on the Transportation Index, which was pounded to the tune of nearly 5% on Friday - it started the day down another 1% in early trading before finding some support and closing the day relatively flat. The Transports are quite economically sensitive so if the broader market is going to hold onto its recent gains, I would think this one will have to make some kind of comeback, being that it tends to be one of the main market leaders.
I don't think we learned too much with the rally yesterday since the seasonality chart could have been part of the reason for the move up in stocks as money managers were likely buying back into some of the stocks they sold last week to get the losing positions off their first quarter reports. It's also a time when we see new pension money come into the market. The next few days may be a test of the market strength.
The S&P 500 (C-fund) has been performing well being up 10 of the last 14 trading days. It is trading near the top of a range and the question on many chart technicians is whether that will hold as resistance, and the fundamentalists are wondering if this rally has come too far too fast and is just a bear market rally destined to fail. Many of the bullish boxes have been checked with it trading above all of the key moving averages, so at this point, a move above last week's highs would be tough to ignore. If that happens the January high could get tested and as we've mentioned, would be par for the course after a 2/10 year yield curve inversion. It's what happened after that that is historically bearish.
The EFA (I-fund) was up but lagged the U.S. indices most likely because of the recent strength in the dollar. Why the dollar is holding up so well, I don't know for sure. It could be some hidden economic strength, it could be the Fed itinerary to raise rates all year, but whatever it is, the I-fund tends to lag the U.S. market when it happens.
BND (Bonds / F-fund) poked its head above that channel that I have been drawing for months. The prior breaks above it haven't lasted long, but eventually one might take and we may get some relief in bonds? When that will be, is the question.
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.
