Stocks chopped around quite a bit on Wednesday as money managers jockey for position in what they call window dressing before the end of the quarter. The indices were mixed by the close but up sharply at times, and down at others, closing somewhere in the middle. The dollar rallied adding some pressure to the larger multi-national companies, as well as the I-fund's international stocks, while smalls caps led with a solid gain, which was interesting since regional banks were down again. Bonds and the F-fund rallied on lower yields.
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Generally money managers like to dump losers and add winners to their portfolios to help their spruce up their quarterly reports, but they also have to maintain their prospectus' specified allocation meaning a certain percentage of stocks, bonds, cash, etc. With the outperformance of stocks in the 2nd quarter, I have been expecting more of a rotation into bonds to end the quarter, but it has been muted at best with two trading days left. Whatever happens during the rest of the week, it may seem irrational to us, but seasonality is on the bulls' side.
Yields were down but I see a mixed picture here when comparing the 10-year and the Bond Fund (BND / F-fund). The 10-year yield looks like it is filling in a bull flag (blue), which would typically lead to a breakout to the upside. That would be bearish for bonds and the F-fund, but...
...the BND (Bonds / F-fund) chart has a good argument for either a breakout, or a break down, depending on which formation you look at. Is that a bearish flag (red) or, with BND trying again to finally above the moving averages, is it ready to open that overhead door that it has been knocking on for weeks? As I mentioned above, the set up is there for a rally in bonds with that theory that fund managers may need to add more bonds before the end of the quarter to properly allocate their portfolios.
The stock market also felt some heat after Fed Chair Powell spoke talking about his continued concern over inflation, and at this point I think the market would rather he just raised rates and got it over with, rather than talking about it repeatedly.
As I bored you with on Wednesday, the dollar looked primed for a move higher yesterday, after bouncing off the 50-day EMA while filling in an open gap near 28.20. Because of that I thought stocks could pull back yesterday, and while the large caps and the I-fund did underperform, a strong dollar doesn't always mean a negative day for stocks. It just makes it tougher for them to go up. It's kind of like traveling in a snow storm. The weather may not stop you from reaching your destination, but it makes it tougher to get there.
With a holiday next week, and a holiday last week, this five day week seems to be dragging on. There could be some good trading opportunities as the VIX (Volatility Index) consolidates near multi-year lows, and it is probably due for a breakout that could elevate volatility. But here comes that holiday, which will feel like 4-day weekend, so it may remain quiet and give the bulls the edge for the next week, regardless of the news and data, although there is a couple of big inflationary reports coming out on Friday in the PCE Prices and Personal Spending reports that the Fed follows very closely.
The S&P 500 (C-fund) stalled for a day as we head into the end of the second quarter. It's sitting in the middle of that blue parallel rising trading channel so there is room on either side, although on the bullish side the 20-day EMA (green) appears to be holding as support. On the bearish side that gap remains open down near 4230, and that's always a potential lure.
DWCPF (S-fund) led on the upside again as higher interest rates curiously don't seem to be a concern here. The 50-day EMA did successfully cross above the 200-day EMA this week, unlike the failure in March. The loss in regional banks didn't seem to hurt the small caps yesterday for some reason, and that may have had to do with the big gains in the oil services related companies yesterday.
The EFA (I-fund) was up slightly but because of the big gain in the dollar yesterday, the solid gains in the European and Asian markets were muted quite a bit. That move up yesterday just about filled that one blue gap but as you can see there are large open gaps above and below, so its not an easy guess. The 20-day EMA held as resistance yesterday and that might continue if the dollar keeps rallying,
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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[TD="width: 338, align: center"] Daily TSP Funds Return
[TR]
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[/TR]
[/TABLE]
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[/TR]
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Generally money managers like to dump losers and add winners to their portfolios to help their spruce up their quarterly reports, but they also have to maintain their prospectus' specified allocation meaning a certain percentage of stocks, bonds, cash, etc. With the outperformance of stocks in the 2nd quarter, I have been expecting more of a rotation into bonds to end the quarter, but it has been muted at best with two trading days left. Whatever happens during the rest of the week, it may seem irrational to us, but seasonality is on the bulls' side.
Yields were down but I see a mixed picture here when comparing the 10-year and the Bond Fund (BND / F-fund). The 10-year yield looks like it is filling in a bull flag (blue), which would typically lead to a breakout to the upside. That would be bearish for bonds and the F-fund, but...
...the BND (Bonds / F-fund) chart has a good argument for either a breakout, or a break down, depending on which formation you look at. Is that a bearish flag (red) or, with BND trying again to finally above the moving averages, is it ready to open that overhead door that it has been knocking on for weeks? As I mentioned above, the set up is there for a rally in bonds with that theory that fund managers may need to add more bonds before the end of the quarter to properly allocate their portfolios.
The stock market also felt some heat after Fed Chair Powell spoke talking about his continued concern over inflation, and at this point I think the market would rather he just raised rates and got it over with, rather than talking about it repeatedly.
As I bored you with on Wednesday, the dollar looked primed for a move higher yesterday, after bouncing off the 50-day EMA while filling in an open gap near 28.20. Because of that I thought stocks could pull back yesterday, and while the large caps and the I-fund did underperform, a strong dollar doesn't always mean a negative day for stocks. It just makes it tougher for them to go up. It's kind of like traveling in a snow storm. The weather may not stop you from reaching your destination, but it makes it tougher to get there.
With a holiday next week, and a holiday last week, this five day week seems to be dragging on. There could be some good trading opportunities as the VIX (Volatility Index) consolidates near multi-year lows, and it is probably due for a breakout that could elevate volatility. But here comes that holiday, which will feel like 4-day weekend, so it may remain quiet and give the bulls the edge for the next week, regardless of the news and data, although there is a couple of big inflationary reports coming out on Friday in the PCE Prices and Personal Spending reports that the Fed follows very closely.
The S&P 500 (C-fund) stalled for a day as we head into the end of the second quarter. It's sitting in the middle of that blue parallel rising trading channel so there is room on either side, although on the bullish side the 20-day EMA (green) appears to be holding as support. On the bearish side that gap remains open down near 4230, and that's always a potential lure.
DWCPF (S-fund) led on the upside again as higher interest rates curiously don't seem to be a concern here. The 50-day EMA did successfully cross above the 200-day EMA this week, unlike the failure in March. The loss in regional banks didn't seem to hurt the small caps yesterday for some reason, and that may have had to do with the big gains in the oil services related companies yesterday.
The EFA (I-fund) was up slightly but because of the big gain in the dollar yesterday, the solid gains in the European and Asian markets were muted quite a bit. That move up yesterday just about filled that one blue gap but as you can see there are large open gaps above and below, so its not an easy guess. The 20-day EMA held as resistance yesterday and that might continue if the dollar keeps rallying,
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.
