Stocks and bonds had a strong day on Friday, tacking onto Thursday's rally after the tame PCE Pricing data, so the stock market, which has been whipsawed by the on again, off again, inflation / interest rate cut scenario, finds itself reacting positively to the recent dovish after data. The Dow gained a modest 91-points on Friday, but the broader indices performed much better with gains near, or just over, 1% on the day. Bonds rallied and with yields falling, and the I-fund played a little catch up.
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It's nice to see the market moving up, and the data has been on the Goldilocks side for the economy, but once again we have some overstretched charts and a bit of a seasonality headwind for the market this week.
First let's look at the drop in the 10-year Treasury Yield which, before Friday's sell off, was looking more like a bull flag that wanted to go higher. A couple of favorable inflationary reports last week helped it put together two negative days in a row, and here is down sharply and testing the 50-day EMA.
The dollar was also down slightly, which helped the I-fund, but as I mentioned in Friday's commentary, the late rally on Thursday in US stocks did not get priced into Thursday's I-fund price, so the TSP had to adjust accordingly and give the I-fund a little extra on Friday.
The strength in the dollar in recent months has had something to do with the Fed continuing to reduce their balance sheet. This is a 2+ year chart and you can see how dramatically their balance sheet has fallen. The potential for a recession has kept the dollar from moving up even further, but at some point I expect higher interest rates and a reduced money supply to weigh more on the stock market than it has been. It's not a day to day thing, but something I keep an eye on.
As for the S&P 500; the gap up in February, after the Fed's FOMC meeting, remains open. We often say that open gaps tend to get filled sooner rather than later, but when they don't get filled quickly it is usually trigger by something that may have changed the character in the stock market. We saw this last fall when the Fed was talking about no more rate hikes and potential rate cuts coming in 2024. So, now we have to continuously look over our shoulder at another open gap, and wonder if and when it will get filled, as gaps tend to do.
This weekly chart of the S&P 500 reminds us how overly stretched the index may be. There are occasional exceptions, like the action during the massive stimulus that the market enjoyed after the COVID, and it stayed stretched for a long time. But generally, this current percentage distance that it is above its 200-week moving average, is looking susceptible. If not for the great action recently, I'd be a lot more concerned.
I showed this chart last week, but I just wanted to remind you that there is a soft spot coming up in the March seasonality chart.
Data provided courtesy of www.sentimentrader.com, analysis by TSP Talk
I believe that I have mentioned this before at some point, but this week is considered one of the seven worst weeks of the year, based on this article that explains the reasoning: Worst Weeks
According to the article:
"This study uses weekly closing prices for the S&P 500 Index going back to October 27, 1967. The Nasty 7 are the week after:"
January Week 1
February Week 5
March Week 3
June Week 3
July Week 5
September Week 3
October Week 3
February did have 5 Friday's and that makes this week qualify as one of those weeks listed, for what it's worth.
It's a quiet week on the economic calendar, that is until Friday when we'll get the February jobs report.
The S&P 500 (C-fund) popped higher again on Friday, ignoring the open gap below, and keeping the rally and the ascending trend going. There's some immediate resistance near 5150, but that is rising resistance so it will be higher tomorrow and higher next week, than it is today. The only thing not to like about a chart that starts in the bottom left and end in the upper right, is whether it has become overbought and in need of a pause or pullback.
DWCPF (S-fund) has been churning sideways for a couple of months and recently it has been poking its head above the December peak, and then on Friday it broke above another level of resistance. This looks great and the only thing that might keep the breakout from remaining alive is if we see yields pop back up this week. The jobs report comes out on Friday and that will give us more info about where yields and interest rates may go next.
The EFA (I-fund) blasted through the flat top formation on Friday and it's tough to find much wrong with this chart. Whether the fundamentals are as good as the chart is another question. If the dollar holds at its recent pullback lows, we could see some pressure back on the I-fund.
BND (bonds / F-fund) had a big day; creating a large outside positive reversal day. This is a technically strong / bullish move as it closed above the large bull flag / descending channel, which could open the door to another push to the January highs. But there is a small gap just overhead that could get filled and act as resistance so we'll have to see how it responds to that gap.
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.
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It's nice to see the market moving up, and the data has been on the Goldilocks side for the economy, but once again we have some overstretched charts and a bit of a seasonality headwind for the market this week.
First let's look at the drop in the 10-year Treasury Yield which, before Friday's sell off, was looking more like a bull flag that wanted to go higher. A couple of favorable inflationary reports last week helped it put together two negative days in a row, and here is down sharply and testing the 50-day EMA.
The dollar was also down slightly, which helped the I-fund, but as I mentioned in Friday's commentary, the late rally on Thursday in US stocks did not get priced into Thursday's I-fund price, so the TSP had to adjust accordingly and give the I-fund a little extra on Friday.
The strength in the dollar in recent months has had something to do with the Fed continuing to reduce their balance sheet. This is a 2+ year chart and you can see how dramatically their balance sheet has fallen. The potential for a recession has kept the dollar from moving up even further, but at some point I expect higher interest rates and a reduced money supply to weigh more on the stock market than it has been. It's not a day to day thing, but something I keep an eye on.
As for the S&P 500; the gap up in February, after the Fed's FOMC meeting, remains open. We often say that open gaps tend to get filled sooner rather than later, but when they don't get filled quickly it is usually trigger by something that may have changed the character in the stock market. We saw this last fall when the Fed was talking about no more rate hikes and potential rate cuts coming in 2024. So, now we have to continuously look over our shoulder at another open gap, and wonder if and when it will get filled, as gaps tend to do.
This weekly chart of the S&P 500 reminds us how overly stretched the index may be. There are occasional exceptions, like the action during the massive stimulus that the market enjoyed after the COVID, and it stayed stretched for a long time. But generally, this current percentage distance that it is above its 200-week moving average, is looking susceptible. If not for the great action recently, I'd be a lot more concerned.
I showed this chart last week, but I just wanted to remind you that there is a soft spot coming up in the March seasonality chart.
Data provided courtesy of www.sentimentrader.com, analysis by TSP Talk
I believe that I have mentioned this before at some point, but this week is considered one of the seven worst weeks of the year, based on this article that explains the reasoning: Worst Weeks
According to the article:
"This study uses weekly closing prices for the S&P 500 Index going back to October 27, 1967. The Nasty 7 are the week after:"
January Week 1
February Week 5
March Week 3
June Week 3
July Week 5
September Week 3
October Week 3
February did have 5 Friday's and that makes this week qualify as one of those weeks listed, for what it's worth.
It's a quiet week on the economic calendar, that is until Friday when we'll get the February jobs report.
The S&P 500 (C-fund) popped higher again on Friday, ignoring the open gap below, and keeping the rally and the ascending trend going. There's some immediate resistance near 5150, but that is rising resistance so it will be higher tomorrow and higher next week, than it is today. The only thing not to like about a chart that starts in the bottom left and end in the upper right, is whether it has become overbought and in need of a pause or pullback.
DWCPF (S-fund) has been churning sideways for a couple of months and recently it has been poking its head above the December peak, and then on Friday it broke above another level of resistance. This looks great and the only thing that might keep the breakout from remaining alive is if we see yields pop back up this week. The jobs report comes out on Friday and that will give us more info about where yields and interest rates may go next.
The EFA (I-fund) blasted through the flat top formation on Friday and it's tough to find much wrong with this chart. Whether the fundamentals are as good as the chart is another question. If the dollar holds at its recent pullback lows, we could see some pressure back on the I-fund.
BND (bonds / F-fund) had a big day; creating a large outside positive reversal day. This is a technically strong / bullish move as it closed above the large bull flag / descending channel, which could open the door to another push to the January highs. But there is a small gap just overhead that could get filled and act as resistance so we'll have to see how it responds to that gap.
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.
