Stocks pulled back on Wednesday erasing most of Tuesday's gains but they are still near the recent highs and above, but testing, some key short-term support levels. The Dow lost 208-points on the day and the broader US indices lost 1% or more. The I-fund led with a smaller loss while bonds and the F-fund moved slightly higher.
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The market has been acting well all year but we continue to get mixed messages from Federal Reserve members, some of which are more hawkish than others. They are still raising rates and last month's jobs report reiterated their need to remain cautious on inflation, yet we have a heard a couple of Fed members mentioning a possibility of cutting rates later in the year.
The Fed has raised rates at a pace that hasn't been done in a long time and the economy has not seen the full impact of those hikes yet, not to mention the hikes yet to come. But the stocks market is a forward looking index and has been attempting to price that in during the 2022 bear market, and the question is, how much has already been priced in?
The action in the stock market has greatly improved in recent week and the charts are showing that the chances of a retest of the October lows are getting very slim. I go with the flow so I won't rule out anything, but other than some short term overbought conditions and a turnaround to overly bullish sentiment that could cause a little more short-term trouble, pullbacks are likely to get bought.
You can see that the 10-year Yield was down after hitting overhead resistance again. The dollar was up slightly but it too is at reliance.
The longer-term chart of the S&P 500 shows the improvement I was talking about but in the short-term, a pullback to 3950 - 4000 wouldn't be out of the question if it falls below 4100, which has been a key level for the S&P for the last year. It can fall down to those levels and the new uptrend would still remain intact. It doesn't have to pull back that far, but it actually wouldn't be a bad thing after the big move off the December lows.
The market leading Dow Transportation Index is also looking quite good after its breakout. Again, a pullback to the 14,700 area (blue arrow) would retest that blue inverted head and shoulders pattern, but there's a chance that the red support line could hold at the August highs. This looks like a classic bottom formation. And as go the Transports...
The market may now be looking forward to the CPI report next Tuesday as the next catalyst as investors are still unsure where the Fed stands on interest rate hikes because of the mixed messages.
The S&P 500 (C-fund) pulled back yesterday retracing Tuesday's gains but it remained above that confluence of support lines. 4100 looks key, then 4000. Either would still keep the chart looking fairly bullish but if it happens to flirt with 395 or lower again, I would get worried.
DWCPF (S-fund) is also within its rising trading channel with more support below that, so this looks good, but pullbacks are still possible, and maybe healthy, assuming the support holds.
The EFA (I-fund) is one that fell below support recently and it failed on a test back up to the old support line. It's above the major moving averages so it still looks bullish, but there's room for it to fall in the short-term.
BND (Bonds / F-fund) is testing support and it is strong support so if it falls below that it could be a game changer for the bond market.
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 market has been acting well all year but we continue to get mixed messages from Federal Reserve members, some of which are more hawkish than others. They are still raising rates and last month's jobs report reiterated their need to remain cautious on inflation, yet we have a heard a couple of Fed members mentioning a possibility of cutting rates later in the year.
The Fed has raised rates at a pace that hasn't been done in a long time and the economy has not seen the full impact of those hikes yet, not to mention the hikes yet to come. But the stocks market is a forward looking index and has been attempting to price that in during the 2022 bear market, and the question is, how much has already been priced in?
The action in the stock market has greatly improved in recent week and the charts are showing that the chances of a retest of the October lows are getting very slim. I go with the flow so I won't rule out anything, but other than some short term overbought conditions and a turnaround to overly bullish sentiment that could cause a little more short-term trouble, pullbacks are likely to get bought.
You can see that the 10-year Yield was down after hitting overhead resistance again. The dollar was up slightly but it too is at reliance.
The longer-term chart of the S&P 500 shows the improvement I was talking about but in the short-term, a pullback to 3950 - 4000 wouldn't be out of the question if it falls below 4100, which has been a key level for the S&P for the last year. It can fall down to those levels and the new uptrend would still remain intact. It doesn't have to pull back that far, but it actually wouldn't be a bad thing after the big move off the December lows.
The market leading Dow Transportation Index is also looking quite good after its breakout. Again, a pullback to the 14,700 area (blue arrow) would retest that blue inverted head and shoulders pattern, but there's a chance that the red support line could hold at the August highs. This looks like a classic bottom formation. And as go the Transports...
The market may now be looking forward to the CPI report next Tuesday as the next catalyst as investors are still unsure where the Fed stands on interest rate hikes because of the mixed messages.
The S&P 500 (C-fund) pulled back yesterday retracing Tuesday's gains but it remained above that confluence of support lines. 4100 looks key, then 4000. Either would still keep the chart looking fairly bullish but if it happens to flirt with 395 or lower again, I would get worried.
DWCPF (S-fund) is also within its rising trading channel with more support below that, so this looks good, but pullbacks are still possible, and maybe healthy, assuming the support holds.
The EFA (I-fund) is one that fell below support recently and it failed on a test back up to the old support line. It's above the major moving averages so it still looks bullish, but there's room for it to fall in the short-term.
BND (Bonds / F-fund) is testing support and it is strong support so if it falls below that it could be a game changer for the bond market.
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.
