Stocks gave up some early gains yesterday after the Fed delivered their 0.25% interest rate hike, updated policy statement, and press conference. The choppy action on an FOMC day is typical but the Fed Talk felt like an uncommitted outlook on future hikes or cuts. Perhaps that means more of the same ahead as many of the large cap indices trade in a range. The Dow lost 270-points, the S&P and Nasdaq were down moderately and small caps held up well and and closed flat, although well off their intraday highs.
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With the economy showing signs of weakening, the market has anticipating interest rate cuts before the end of the year, but the Fed didn't give any solid indication that they are done raising, although it seems to be assumed. So the recent rally in stocks was basically investor pricing in the end of the rate cuts, but yesterday left some of uncertainty on the table.
We got a bit of a shake up in the market yesterday but nothing major. With some indices at the top of ranges and others at resistance, some charts are starting to favor the bears again, but as has been the case for months now, it's tough to find someone who is not already concerned about the economic situation, and when that's the case there tends to be a cushion under the market. It doesn't have to go up any more since the S&P has rallied 17% off the October lows already, but there may not be any kind of a melt down given the elevated bearishness, that is unless we get some very unfavorable, unforeseen, headlines. Of course a trip to the bottom of the trading range is always a possibility in an oscillating market.
The S&P 500 has been in that range for more than a year now, and here it is backing off from the top of the range again. A breakout above 4200 that holds would tell us a lot, but that hasn't happened yet -- at least not since the failed breakout in last summer. The PMO indicator has rolled over again crossing below it moving average for the second time in a couple of weeks, which isn't the best set up for this chart.
So, a weakening economy, sticky inflation, and higher interest rates may already be baked in, but investors may have already priced in rate cuts during the second half of the year. If that doesn't happen, or there is another wave of bank failures, we could have a black swan event on our hands. Without that kind of an anomaly, the bears may have more to prove than the bulls. I am not bullish, but because so many people are bearish, I'm probably more neutral than anything. I just can't seem to pull the trigger on a buy at the top of the ranges.
Small caps have been a different story because of those regional bank stocks. The Regional Bank ETF (KRE) may be getting low enough to look a little attractive valuation-wise, but the chart looks terrible. This is one of those situations where buying is like trying to catch a falling knife, and unfortunately it is taking the S-fund (DWCPF) with it.
Yesterday's negative reversal can't be completely trusted since it was an emotion Fed day, but the chart is broken, and failed on the way up when it tested resistance. Be careful here. The risk / reward trade may be getting better, but this chart probably suggests AT LEAST a test of the March low.
Signs of economic trouble can be seen in the price of oil plummeting, suggesting a decline in demand. Good for us when we fill up our gas tanks, but expectations are for less use this summer because of the economy.
The Transports go hand in hand with oil because of the planes, trains, and automobiles, as it is very economically sensitive and the chart looks more like those ugly small caps than the large caps which are near their recent highs.
We'll get Apple's earnings after the close today. And on Friday, before the opening bell, we'll get the April Jobs Report. Estimates are looking for a gain of between 180,000 and 200,000 jobs. The unemployment rate is expected to come in at 3.6% after the prior month's 3.5%.
The S&P 500 (C-fund) was discussed above but I just wanted to point out the F-flag (blue) breaking down again after a failed breakdown last week. If the 50-day EMA can continue to hold, I would anticipate another attempt at the highs. If that 50-day EMA breaks however, that open gap below 4000 will be back in the picture.
DWCPF (S-fund) looks bad. Perhaps a double bottom low is the most optimistic outlook, but be careful. Another bank failure and those lows would be toast.
The EFA (I-fund) rallied early, filled a gap (blue) and headed down with the US stocks. The 72.50 area looks like a line in the sand for the bulls.
BND (Bonds / F-fund) rallied for a second straight day and it looks like more right shoulder filling, but also a possible test of the middle of the head which is a legitimate formation. There happens to be an open gap in that area. The head and shoulders pattern looks bearish for bonds, but that doesn't make a lot of sense if the economy is weakening as yields tend to go down in that situation, and if that happens bond prices would go up. I may be going into the weeds here but head and shoulders patterns are often considered continuation patterns, meaning they break in the direction of the trend before the H&S was formed. So a break to the upside actually wouldn't be out of the ordinary at all. H&S patterns just seem to work better (break down) when they occur in descending markets.
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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With the economy showing signs of weakening, the market has anticipating interest rate cuts before the end of the year, but the Fed didn't give any solid indication that they are done raising, although it seems to be assumed. So the recent rally in stocks was basically investor pricing in the end of the rate cuts, but yesterday left some of uncertainty on the table.
We got a bit of a shake up in the market yesterday but nothing major. With some indices at the top of ranges and others at resistance, some charts are starting to favor the bears again, but as has been the case for months now, it's tough to find someone who is not already concerned about the economic situation, and when that's the case there tends to be a cushion under the market. It doesn't have to go up any more since the S&P has rallied 17% off the October lows already, but there may not be any kind of a melt down given the elevated bearishness, that is unless we get some very unfavorable, unforeseen, headlines. Of course a trip to the bottom of the trading range is always a possibility in an oscillating market.
The S&P 500 has been in that range for more than a year now, and here it is backing off from the top of the range again. A breakout above 4200 that holds would tell us a lot, but that hasn't happened yet -- at least not since the failed breakout in last summer. The PMO indicator has rolled over again crossing below it moving average for the second time in a couple of weeks, which isn't the best set up for this chart.
So, a weakening economy, sticky inflation, and higher interest rates may already be baked in, but investors may have already priced in rate cuts during the second half of the year. If that doesn't happen, or there is another wave of bank failures, we could have a black swan event on our hands. Without that kind of an anomaly, the bears may have more to prove than the bulls. I am not bullish, but because so many people are bearish, I'm probably more neutral than anything. I just can't seem to pull the trigger on a buy at the top of the ranges.
Small caps have been a different story because of those regional bank stocks. The Regional Bank ETF (KRE) may be getting low enough to look a little attractive valuation-wise, but the chart looks terrible. This is one of those situations where buying is like trying to catch a falling knife, and unfortunately it is taking the S-fund (DWCPF) with it.
Yesterday's negative reversal can't be completely trusted since it was an emotion Fed day, but the chart is broken, and failed on the way up when it tested resistance. Be careful here. The risk / reward trade may be getting better, but this chart probably suggests AT LEAST a test of the March low.
Signs of economic trouble can be seen in the price of oil plummeting, suggesting a decline in demand. Good for us when we fill up our gas tanks, but expectations are for less use this summer because of the economy.
The Transports go hand in hand with oil because of the planes, trains, and automobiles, as it is very economically sensitive and the chart looks more like those ugly small caps than the large caps which are near their recent highs.
We'll get Apple's earnings after the close today. And on Friday, before the opening bell, we'll get the April Jobs Report. Estimates are looking for a gain of between 180,000 and 200,000 jobs. The unemployment rate is expected to come in at 3.6% after the prior month's 3.5%.
The S&P 500 (C-fund) was discussed above but I just wanted to point out the F-flag (blue) breaking down again after a failed breakdown last week. If the 50-day EMA can continue to hold, I would anticipate another attempt at the highs. If that 50-day EMA breaks however, that open gap below 4000 will be back in the picture.
DWCPF (S-fund) looks bad. Perhaps a double bottom low is the most optimistic outlook, but be careful. Another bank failure and those lows would be toast.
The EFA (I-fund) rallied early, filled a gap (blue) and headed down with the US stocks. The 72.50 area looks like a line in the sand for the bulls.
BND (Bonds / F-fund) rallied for a second straight day and it looks like more right shoulder filling, but also a possible test of the middle of the head which is a legitimate formation. There happens to be an open gap in that area. The head and shoulders pattern looks bearish for bonds, but that doesn't make a lot of sense if the economy is weakening as yields tend to go down in that situation, and if that happens bond prices would go up. I may be going into the weeds here but head and shoulders patterns are often considered continuation patterns, meaning they break in the direction of the trend before the H&S was formed. So a break to the upside actually wouldn't be out of the ordinary at all. H&S patterns just seem to work better (break down) when they occur in descending markets.
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.
