A late afternoon rally took the indices from slight losses to hefty gains on Tuesday as investors ignored the hotter than expected PPI number to push the S&P 500 closer to its highs for the year, and in the case of the Nasdaq, making new highs. Small caps and the I-fund had good days as yields and the dollar were down - again a surprise given the inflationary data.
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The bulls had momentum leading into yesterday's PPI report, but there was also a setup for a possible double top pullback if the inflation data was too hot. Well, the data was hotter than expected but they revised prior reports lower and that seemed to ease investors' concerns. What that was all about, I don't know, but we get to see them try to do it again today with the CPI report.
It could just be a matter of stocks wanting to go higher, and good or bad news is not going to get in the way - maybe just a speed bump here and there. It's difficult to put money to work when things are running away from you, but that's the nature of the market climbing a wall of worry. Investor sentiment is still on the defensive side and this can lead to climbing that wall, no matter how good or bad things are looking in the fundamentals.
These relentless rallies have always been trouble for me to navigate because I always have the feeling that once I lay all my money on the table, the party will be over. It's like hitting a 15 or 16 in blackjack. The book says we're supposed to take another card if the dealer is showing a 7 or higher, but you know that card can easily bust you.
It is an election year, and while history suggests May, as well as April, can have some trouble in election years, election years in general have a positive bias and so far we see the dip buyers taking advantage.
I probably would have bet on the 10-year Treasury Yield moving up yesterday after that hotter than expected PPI report, but instead it went down. Again, why? Was the whisper number even higher for the PPI? Inflation is trending lower but it's still above the Fed's target level so while the bond and stock markets were OK with the higher than expected number yesterday, will it keep the Fed dovish enough for them to move interest rates lower this summer?
The dollar (UUP) was also down yesterday and remains in the downward sloping channel, which I have been speculating could be a bull flag that will eventually break to the upside, but the 50-day EMA near 28.50 and the open gap near 28.30 could be potential downside targets first.
Here's the chart of the Nasdaq which made a new closing high yesterday but it didn't quite reach the intraday high from mid-March. It looks like it could be a large inverted head and shoulders pattern so technically this could still create a right shoulder before breaking out. Today's CPI number may be the judge of that.
Despite decent gains in the S&P 500 and other indices during the first two days of trading this week, the Volatility Index is up for the week and above a descending resistance line. The late rally yesterday took it off its highs of the day which was a few ticks above 14, but it did settle down to close slightly down on the day. Being up for the week despite the healthy gains in stocks could mean investors are expecting a big move off of today's CPI report.
The CPI report comes out before the opening bell so the fireworks could start right away. As we saw yesterday, the market may not act in accordance to the outcome of the economic data since it seems the market is trying to go higher regardless - whether it is just trying to tag the old highs first for a double top, or actually break out to new highs.
Oh, and for those keeping score of the meme stocks; Gamestop was up another 60% yesterday, and AMC tacked on 32%.
The S&P 500 (C-fund) came off the lows in the middle of April and it looked like it was trying to create a bear flag, but instead it turned into more of a "V" bottom. Now it has come almost full circle and it is testing those highs again. The negative divergence on the PMO indicator hasn't been a problem. The dried up trading volume hasn't had any negative ramifications yet. What about a double top?
DWCPF (S-fund) led the way, which was curious to me with the hot PPI data, but yields fell and that's a plus for the interest rate sensitive small caps.
The EFA (I-fund) made another new high, and that's four straight days above the breakout area. That's both impressive and surprising to see the relative strength - chart-wise - over the US index charts.
BND (bonds / F-fund) was up and the bull flag is still waving despite the overhead resistance. One thing I have noticed about flag formations this year on the bond chart....
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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The bulls had momentum leading into yesterday's PPI report, but there was also a setup for a possible double top pullback if the inflation data was too hot. Well, the data was hotter than expected but they revised prior reports lower and that seemed to ease investors' concerns. What that was all about, I don't know, but we get to see them try to do it again today with the CPI report.
It could just be a matter of stocks wanting to go higher, and good or bad news is not going to get in the way - maybe just a speed bump here and there. It's difficult to put money to work when things are running away from you, but that's the nature of the market climbing a wall of worry. Investor sentiment is still on the defensive side and this can lead to climbing that wall, no matter how good or bad things are looking in the fundamentals.
These relentless rallies have always been trouble for me to navigate because I always have the feeling that once I lay all my money on the table, the party will be over. It's like hitting a 15 or 16 in blackjack. The book says we're supposed to take another card if the dealer is showing a 7 or higher, but you know that card can easily bust you.
It is an election year, and while history suggests May, as well as April, can have some trouble in election years, election years in general have a positive bias and so far we see the dip buyers taking advantage.
I probably would have bet on the 10-year Treasury Yield moving up yesterday after that hotter than expected PPI report, but instead it went down. Again, why? Was the whisper number even higher for the PPI? Inflation is trending lower but it's still above the Fed's target level so while the bond and stock markets were OK with the higher than expected number yesterday, will it keep the Fed dovish enough for them to move interest rates lower this summer?
The dollar (UUP) was also down yesterday and remains in the downward sloping channel, which I have been speculating could be a bull flag that will eventually break to the upside, but the 50-day EMA near 28.50 and the open gap near 28.30 could be potential downside targets first.
Here's the chart of the Nasdaq which made a new closing high yesterday but it didn't quite reach the intraday high from mid-March. It looks like it could be a large inverted head and shoulders pattern so technically this could still create a right shoulder before breaking out. Today's CPI number may be the judge of that.
Despite decent gains in the S&P 500 and other indices during the first two days of trading this week, the Volatility Index is up for the week and above a descending resistance line. The late rally yesterday took it off its highs of the day which was a few ticks above 14, but it did settle down to close slightly down on the day. Being up for the week despite the healthy gains in stocks could mean investors are expecting a big move off of today's CPI report.
The CPI report comes out before the opening bell so the fireworks could start right away. As we saw yesterday, the market may not act in accordance to the outcome of the economic data since it seems the market is trying to go higher regardless - whether it is just trying to tag the old highs first for a double top, or actually break out to new highs.
Oh, and for those keeping score of the meme stocks; Gamestop was up another 60% yesterday, and AMC tacked on 32%.
The S&P 500 (C-fund) came off the lows in the middle of April and it looked like it was trying to create a bear flag, but instead it turned into more of a "V" bottom. Now it has come almost full circle and it is testing those highs again. The negative divergence on the PMO indicator hasn't been a problem. The dried up trading volume hasn't had any negative ramifications yet. What about a double top?
DWCPF (S-fund) led the way, which was curious to me with the hot PPI data, but yields fell and that's a plus for the interest rate sensitive small caps.
The EFA (I-fund) made another new high, and that's four straight days above the breakout area. That's both impressive and surprising to see the relative strength - chart-wise - over the US index charts.
BND (bonds / F-fund) was up and the bull flag is still waving despite the overhead resistance. One thing I have noticed about flag formations this year on the bond chart....
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.
