The market did some modest digesting on Monday, digesting of Friday's big gains, last week's big gains, and October's big gains. The Dow lost 129-points but perhaps surprisingly, it was the best month for the Dow since 1976. Welcome to a bear market. The problem yesterday was that it appears that bond yields and the dollar have stopped pulling back, and are in fact moving up again. Does this say something about what savvy bond traders are preparing for during Wednesday's rate hike announcement?
[TABLE="align: center"]
[TR]
[TD="align: center"]
[/TD]
[TD]
[/TD]
[TD="width: 338, align: center"] Daily TSP Funds Return
[TABLE="align: center"]
[TR]
[TD="align: right"][/TD]
[/TR]
[/TABLE]
[/TD]
[/TR]
[/TABLE]
Despite the loss yesterday, the Dow had it's best month since January of 1976, and that may not be what the Fed wants to hear. The Fed is looking to slow down the economy and curb inflation and a runaway stock market could be a slap in their face of their relentless pursuit.
The 10-year Treasury Yield is back above 4% after finding support where traders expected it to. It is now looking back up from the bottom of its recent ascending trading channel.
The dollar is also bouncing off out what looks like the bottom of a big bull flag. So far it has just filled two open gaps within the flag, but the flag is valid, and bull flags tend to break to the upside, and the stock market would not like that.
I haven't mentioned the 2-year vs. 10-year yield curve in a bit and there has been no headway made. It's been inverted for 4 straight months after a brief inversion in April. If this doesn't precede a recession - probably in 2023, it would be a rare economic achievement.
Historically we have seen good sized rallies while the yield curve was inverted, but it never ends well. This is something I posted at the end of March just before that April inversions. Let's revisit.
Here are the last four official recessions in the U.S.
July 1990–Mar 1991
Mar 2001–Nov 2001
Dec 2007–June 2009
Feb 2020–April 2020
Here are some charts of the 2/10 yield curve inverting over the last 30 years. Only the 1998 inversion did not lead to an official recession, although the stock market eventually corrected sharply that year as well. But also, as I mentioned above, stocks did not peak before or when the yield curve inverted, but instead many weeks or months later. So there were corrections and bear markets after inversions, but not before new highs were made each time, so I guess we can't rule that out this time.
As you can see, in all cases stocks moved higher for many weeks or several months, before peaking.
There are a couple of charts, Amazon and Apple, that could go either way that could make or break the stock market. Both of these companies reported earnings last week. Amazon dropped and Apple rallied after reporting. Yesterday they both declined and the head and shoulders pattern looks a little alarming on the Amazon chart, but sometimes you do see a bounce off the neckline of support first, which it is testing now.
Apple hit 155 after earnings, an area that has been pivotal for this stock after a couple of reversals, and it looks to be the make or break area right now. There is a potential headwind for Apple in regards to China who continues to impose Covid lockdowns, and there's talk of it impacting supply. Tomorrow we get some economic reports that could impact the Fed's outlook on the economy. The JOLTS job openings report for September, and the ISM Manufacturing Index for October.
We will get the October jobs report this coming Friday. Estimates are looking for a gain of 242,000 jobs and an unemployment rate of 3.5%. With the Fed's FOMC meeting in the rearview mirror by Friday, it may not be as big of a deal since we will also get the November jobs report in early December before the next FOMC meeting on December 13 - 14th.
The S&P 500 (C-fund) slipped back after Friday's monster rally. The month started with the S&P 500 at 3586 and ended the month at 3872. Not too shabby, and I feel lucky to get a chance to make some money in this ugly 2022 bull market. That 3900 area has been one of the resistance areas for the S&P, but there are some potential targets above IF it can get above 3900. 3900 is where the neckline of that head and shoulders pattern (blue) broke down in September and often broken support becomes resistance so all ayes are on that area right now. We could see support and resistance gets taken out easily during Fed day, but watch where the index closes.
The DWCPF (small caps / S-fund) is still pinned to the top of what looks like a bearish flag, but that first open gap near 1675 looks so close that it might get filled in a wild Fed fueled day of trading. But again, where it closes is the key and 1650 - 1675 look to be some key lines in the sand. If it can get above that investors will start watching the open gap near 1750 and the 200-day EMA about 10 points above that, currently 1761, but moving lower every day.
The EFA (I-fund) was down nearly 1% yesterday as the dollar gains strength again after the recent pullback. It closed yesterday just below its 50-day EMA. The chart doesn't look good but you never know what the Fed might say to shake things up for the dollar.
BND (bonds / F-fund) was down as yields are pushing upward again. It is above some key resistance, but I took a look at the longer term bond ETF (TLT) and it remains below resistance. The TSP's F-fund more closely tracks the BND, but just an FYI.
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.
[TABLE="align: center"]
[TR]
[TD="align: center"]
[TD]
[/TD]
[TD="width: 338, align: center"] Daily TSP Funds Return
[TR]
[TD="align: right"][/TD]
[/TR]
[/TABLE]
[/TD]
[/TR]
[/TABLE]
Despite the loss yesterday, the Dow had it's best month since January of 1976, and that may not be what the Fed wants to hear. The Fed is looking to slow down the economy and curb inflation and a runaway stock market could be a slap in their face of their relentless pursuit.
The 10-year Treasury Yield is back above 4% after finding support where traders expected it to. It is now looking back up from the bottom of its recent ascending trading channel.
The dollar is also bouncing off out what looks like the bottom of a big bull flag. So far it has just filled two open gaps within the flag, but the flag is valid, and bull flags tend to break to the upside, and the stock market would not like that.
I haven't mentioned the 2-year vs. 10-year yield curve in a bit and there has been no headway made. It's been inverted for 4 straight months after a brief inversion in April. If this doesn't precede a recession - probably in 2023, it would be a rare economic achievement.
Historically we have seen good sized rallies while the yield curve was inverted, but it never ends well. This is something I posted at the end of March just before that April inversions. Let's revisit.
Here are the last four official recessions in the U.S.
July 1990–Mar 1991
Mar 2001–Nov 2001
Dec 2007–June 2009
Feb 2020–April 2020
Here are some charts of the 2/10 yield curve inverting over the last 30 years. Only the 1998 inversion did not lead to an official recession, although the stock market eventually corrected sharply that year as well. But also, as I mentioned above, stocks did not peak before or when the yield curve inverted, but instead many weeks or months later. So there were corrections and bear markets after inversions, but not before new highs were made each time, so I guess we can't rule that out this time.
As you can see, in all cases stocks moved higher for many weeks or several months, before peaking.
There are a couple of charts, Amazon and Apple, that could go either way that could make or break the stock market. Both of these companies reported earnings last week. Amazon dropped and Apple rallied after reporting. Yesterday they both declined and the head and shoulders pattern looks a little alarming on the Amazon chart, but sometimes you do see a bounce off the neckline of support first, which it is testing now.
Apple hit 155 after earnings, an area that has been pivotal for this stock after a couple of reversals, and it looks to be the make or break area right now. There is a potential headwind for Apple in regards to China who continues to impose Covid lockdowns, and there's talk of it impacting supply. Tomorrow we get some economic reports that could impact the Fed's outlook on the economy. The JOLTS job openings report for September, and the ISM Manufacturing Index for October.
We will get the October jobs report this coming Friday. Estimates are looking for a gain of 242,000 jobs and an unemployment rate of 3.5%. With the Fed's FOMC meeting in the rearview mirror by Friday, it may not be as big of a deal since we will also get the November jobs report in early December before the next FOMC meeting on December 13 - 14th.
The S&P 500 (C-fund) slipped back after Friday's monster rally. The month started with the S&P 500 at 3586 and ended the month at 3872. Not too shabby, and I feel lucky to get a chance to make some money in this ugly 2022 bull market. That 3900 area has been one of the resistance areas for the S&P, but there are some potential targets above IF it can get above 3900. 3900 is where the neckline of that head and shoulders pattern (blue) broke down in September and often broken support becomes resistance so all ayes are on that area right now. We could see support and resistance gets taken out easily during Fed day, but watch where the index closes.
The DWCPF (small caps / S-fund) is still pinned to the top of what looks like a bearish flag, but that first open gap near 1675 looks so close that it might get filled in a wild Fed fueled day of trading. But again, where it closes is the key and 1650 - 1675 look to be some key lines in the sand. If it can get above that investors will start watching the open gap near 1750 and the 200-day EMA about 10 points above that, currently 1761, but moving lower every day.
The EFA (I-fund) was down nearly 1% yesterday as the dollar gains strength again after the recent pullback. It closed yesterday just below its 50-day EMA. The chart doesn't look good but you never know what the Fed might say to shake things up for the dollar.
BND (bonds / F-fund) was down as yields are pushing upward again. It is above some key resistance, but I took a look at the longer term bond ETF (TLT) and it remains below resistance. The TSP's F-fund more closely tracks the BND, but just an FYI.
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.
