Stocks were up most of the day yesterday before the FOMC meeting let out and the 0.75% interest rate hike was announced. When the dust settled two hours after the announcement, the indices were down 1.5% to 2% across the board. The Dow lost 522-points and an important gap was filled on the S&P 500 chart. Bonds were up as yields spiked, then reversed during the day. The dollar made a new high.
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The Fed didn't really surprise anybody with their 0.75% interest rate hike, but that didn't stop the market gyrating wildly after the 2 PM rate decision was announced. The volatility continued during the subsequent press conference with Jerome Powell who basically said what he said at the Jackson Hole Symposium. If anything, the word on the street yesterday was that the Fed out hawked the hawks.
The dollar continues to gain strength and that puts pressure on anything priced in dollar. During inflationary periods we expect the dollar to weaken and things like gold and silver rally, but it has been the opposite, and supposedly that is because the overseas economies are in worse shape than the U.S. economy. There's a couple of open gaps now on the chart and if they get filled it could be the catalyst for some temporary relief in stocks, but we keep getting reminded that we are in a bear market and selling rallies is the way to play it. It will end at some point, but I recall thinking every rally was creating a bottom during the 2008 bear market before it finally happened in March of 2009. It's not easy, and it will hurt your account if you continue to be early on that call. By the way, gold and silver were up yesterday despite the strong move in the dollar, so is a shift coming there?
I'm looking for a decoupling of the stock and bond markets in the coming months. This year stocks and bond prices have been basically moving in the same direction, and that's not typical. I figured at some point during the bear market the flight to the safety of bonds, especially at the higher rates, would kick in. So far that hasn't happen but we got a small taste yesterday.
At one point yesterday the yield on the 30 year bond was lower than the 10-year yield for a rare inversion in those bonds, but the 30 year managed to close slightly above the 10 year by the close.
The question we keep asking is whether the market has priced in all of the inflation, interest rates hikes, and potential economic slowdown including an anticipated higher unemployment rate. To that I say maybe, but I they have not adjusted for what is going to happen to earnings with these higher interest rates, and that may be the next catalyst for more selling.
Timing-wise, that could take weeks or months to play out, so in the interim it should set up a few good trading opportunities.
The S&P 500 (C-fund) was all over the map yesterday but the lows of the day finally filled that open gap from back in mid-July. Sometimes the bottom of the gap will act as support, but the trend is still down, we're still in a bear market, and the longer it lingers in this area, the more likely the June lows near 3650 will be in play again.
The DWCPF (S-fund / small caps) lost 1.5% yesterday and that stealth gap I mentioned the other day was almost filled. There's decent support near 1600 but it is declining support if the bottom of that gap doesn't hold.
The EFA (I-fund) fell 1.3% and broke down below the June lows - the first TSP stock fund to do so - and the neckline of the head and shoulders pattern also gave way. The strength in the dollar has just been too much for this fund.
The BND (bonds / F-fund) made a new low but there was a pretty significant positive outside reversal day created. Will this be the start of a double bottom bounce for bonds and the F-fund?
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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The Fed didn't really surprise anybody with their 0.75% interest rate hike, but that didn't stop the market gyrating wildly after the 2 PM rate decision was announced. The volatility continued during the subsequent press conference with Jerome Powell who basically said what he said at the Jackson Hole Symposium. If anything, the word on the street yesterday was that the Fed out hawked the hawks.
The dollar continues to gain strength and that puts pressure on anything priced in dollar. During inflationary periods we expect the dollar to weaken and things like gold and silver rally, but it has been the opposite, and supposedly that is because the overseas economies are in worse shape than the U.S. economy. There's a couple of open gaps now on the chart and if they get filled it could be the catalyst for some temporary relief in stocks, but we keep getting reminded that we are in a bear market and selling rallies is the way to play it. It will end at some point, but I recall thinking every rally was creating a bottom during the 2008 bear market before it finally happened in March of 2009. It's not easy, and it will hurt your account if you continue to be early on that call. By the way, gold and silver were up yesterday despite the strong move in the dollar, so is a shift coming there?
I'm looking for a decoupling of the stock and bond markets in the coming months. This year stocks and bond prices have been basically moving in the same direction, and that's not typical. I figured at some point during the bear market the flight to the safety of bonds, especially at the higher rates, would kick in. So far that hasn't happen but we got a small taste yesterday.
At one point yesterday the yield on the 30 year bond was lower than the 10-year yield for a rare inversion in those bonds, but the 30 year managed to close slightly above the 10 year by the close.
The question we keep asking is whether the market has priced in all of the inflation, interest rates hikes, and potential economic slowdown including an anticipated higher unemployment rate. To that I say maybe, but I they have not adjusted for what is going to happen to earnings with these higher interest rates, and that may be the next catalyst for more selling.
Timing-wise, that could take weeks or months to play out, so in the interim it should set up a few good trading opportunities.
The S&P 500 (C-fund) was all over the map yesterday but the lows of the day finally filled that open gap from back in mid-July. Sometimes the bottom of the gap will act as support, but the trend is still down, we're still in a bear market, and the longer it lingers in this area, the more likely the June lows near 3650 will be in play again.
The DWCPF (S-fund / small caps) lost 1.5% yesterday and that stealth gap I mentioned the other day was almost filled. There's decent support near 1600 but it is declining support if the bottom of that gap doesn't hold.
The EFA (I-fund) fell 1.3% and broke down below the June lows - the first TSP stock fund to do so - and the neckline of the head and shoulders pattern also gave way. The strength in the dollar has just been too much for this fund.
The BND (bonds / F-fund) made a new low but there was a pretty significant positive outside reversal day created. Will this be the start of a double bottom bounce for bonds and the F-fund?
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.
