The reaction to Friday's jobs report was interesting as we saw prices move up initially, but as the day wore on the selling picked up, coinciding with the 10 AM consumer confidence report which was weaker than expected, and that created a negative outside reversal day on the charts. The jobs data missed estimates and that would typically send yields lower, but yields actually moved up, although the chances of an interest rate cut by the May meeting went down, so there was a lot of head scratching activity. Hopefully the charts will help paint the picture for us.
You can see the latest updated TSP share prices and returns, usually posted daily by 8:30 PM ET here: https://www.tsptalk.com/tsp_share_prices.php
Quick note that Tuesday's report may be brief as I have a prior engagement taking up most of my Monday and I won't have time to do a full analysis. I apologize for that, but I am working on Super Bowl Sunday to get this report out for Monday.
Almost nothing I said about the jobs report actually came to fruition. I didn't say much but I did say that the population adjustment could propel the unemployment rate higher than expected, but instead the unemployment rate dropped to 4.0%. I also thought a weak employment report would send yields lower, but instead they went up.
I think we're all familiar with the term buy the rumor, sell the news (or sell the rumor, buy the news.) That may have been what happened with the bond market on Friday, and the action was actually quite convenient, as far as tidying up the chart.
The 10-year Treasury Yield ($TNX) did not go down on the softer than expected jobs data, but instead it moved up, tested some overhead resistance and the 50-day EMA. It's normal action for this chart, but a little curious given the data. I might have expected that to happen if the jobs report beat estimates.
The BND is the F-fund chart, which filled a gap and tested rising support with Friday's pullback. Bond prices and the F-fund generally move counter to yields.
Again, the increase in yields was odd because with this weaker jobs data, the chances of a rate cut by the May FOMC meeting dropped about 13% - so the chances of rates remaining at the current rate went up 13%.
This next bit of information was taken from the X account of someone who goes by @TomasOnMarkets, and he tends to focus on monetary policy, especially the Fed balance sheet and its influence on markets. I look at this very favorably for the stock market, although it may not be a good short-term timing tool.
You can read his entire post here: https://x.com/TomasOnMarkets/status/1888607800873435393, but for now here's some bullet points that I found particularly interesting.
Here is the Fed balance sheet and you can see the downward trajectory as they unwound the COVID liquidity that eventually caused inflation. Now they are done and it should start moving upward again, meaning more money circulating.
Not that the stock market didn't do well while the balance sheet was declining for most of 2023 and 2024, but as I said this is not about using this to time the market. It is just a pretty good breeze in the face of, or at the back of the market, depending on which way it is blowing, and if TomasOnMarkets is right, the wind may soon be at the back of the market. That is despite any unfavorable valuations or guidance. Easy, cheap money usually means assets go up in value, so while I am not always in stocks, I feel the buy the dip mentality is still in play until something changes. How deep the dips go is another story as we haven't had a full 10% pullback in the S&P 500 in a couple of years.
The market leader, one the sectors that often gives us clues about the state of the economy, is the Dow Transportation Index, and right now it is forming the right shoulder of a bearish head and shoulders pattern, with the 200-day EMA trying to hold on as the neckline support. Less than 16,000 would be a dangerous sign, and over 16,400 could be a positive nudge for the bulls on this chart.
We get the CPI and the PPI data this week, and they can be market movers if it sways the Fed's outlook on inflation and interest rates.
The S&P 500 (C-fund) pulled back from the double top area and the top of the bull flag. Not the best look but not terrible either. The negative outside reversal day is a technical red flag for further downside action, so I am concerned about that. A move down to the bottom of the flag or even an attempt to full the open gap from mid-January is still on the table, but for now the green 20-day EMA has held on a modest pullback from the January highs.
DWCPF (S-fund) has been the leading TSP fund this year with the 4.7% gain, but it continues to struggle at the 2400 area. Can it get past that without filling in the open gap down by 2280 first, where the 100-day EMA is also sitting? Does it need another test of that area to push the weaker bulls out of the picture before it attempts new highs again? That may be what the larger trading institutions are trying to get us (retail investors) to do.
ACWX (the I-fund tracking index) is also dealing with overhead resistance after a really nice rally off the lows. The February 3rd sell off was a cleansing act, but it may more more backing and filling before breaking out. That said, triple top resistance isn't usually as firm as a double top.
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
Questions, comments, or issues with today's commentary? We can discuss it in the Forum.
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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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You can see the latest updated TSP share prices and returns, usually posted daily by 8:30 PM ET here: https://www.tsptalk.com/tsp_share_prices.php
Quick note that Tuesday's report may be brief as I have a prior engagement taking up most of my Monday and I won't have time to do a full analysis. I apologize for that, but I am working on Super Bowl Sunday to get this report out for Monday.
Almost nothing I said about the jobs report actually came to fruition. I didn't say much but I did say that the population adjustment could propel the unemployment rate higher than expected, but instead the unemployment rate dropped to 4.0%. I also thought a weak employment report would send yields lower, but instead they went up.
I think we're all familiar with the term buy the rumor, sell the news (or sell the rumor, buy the news.) That may have been what happened with the bond market on Friday, and the action was actually quite convenient, as far as tidying up the chart.
The 10-year Treasury Yield ($TNX) did not go down on the softer than expected jobs data, but instead it moved up, tested some overhead resistance and the 50-day EMA. It's normal action for this chart, but a little curious given the data. I might have expected that to happen if the jobs report beat estimates.
The BND is the F-fund chart, which filled a gap and tested rising support with Friday's pullback. Bond prices and the F-fund generally move counter to yields.
Again, the increase in yields was odd because with this weaker jobs data, the chances of a rate cut by the May FOMC meeting dropped about 13% - so the chances of rates remaining at the current rate went up 13%.
This next bit of information was taken from the X account of someone who goes by @TomasOnMarkets, and he tends to focus on monetary policy, especially the Fed balance sheet and its influence on markets. I look at this very favorably for the stock market, although it may not be a good short-term timing tool.
You can read his entire post here: https://x.com/TomasOnMarkets/status/1888607800873435393, but for now here's some bullet points that I found particularly interesting.
| The US Government will soon begin a drawdown of the Treasury General Account (TGA). This could mean a liquidity injection totaling up to $830bn. Functionally, this is similar to Quantitative Easing. The TGA can be thought of as the Government's bank account at the Federal Reserve. It currently has a sizable balance of $830bn. This money is currently sat idle at the Fed - so it is "removed from markets". If the Government begins to draw down the TGA, this is an injection of "new" liquidity into markets. A TGA drawdown and Quantitative Easing (QE) are functionally similar in that both inject liquidity into the financial system by increasing bank reserves. While not strictly "QE" - it looks like QE, sounds like QE and smells like QE, which is why it has been dubbed "not QE, QE". And the impact of debt ceiling-induced TGA drawdowns on financial markets can be similar to QE, on a temporary basis. In the past, significant TGA drawdowns have generally coincided with asset price appreciation. |
Here is the Fed balance sheet and you can see the downward trajectory as they unwound the COVID liquidity that eventually caused inflation. Now they are done and it should start moving upward again, meaning more money circulating.
Not that the stock market didn't do well while the balance sheet was declining for most of 2023 and 2024, but as I said this is not about using this to time the market. It is just a pretty good breeze in the face of, or at the back of the market, depending on which way it is blowing, and if TomasOnMarkets is right, the wind may soon be at the back of the market. That is despite any unfavorable valuations or guidance. Easy, cheap money usually means assets go up in value, so while I am not always in stocks, I feel the buy the dip mentality is still in play until something changes. How deep the dips go is another story as we haven't had a full 10% pullback in the S&P 500 in a couple of years.
The market leader, one the sectors that often gives us clues about the state of the economy, is the Dow Transportation Index, and right now it is forming the right shoulder of a bearish head and shoulders pattern, with the 200-day EMA trying to hold on as the neckline support. Less than 16,000 would be a dangerous sign, and over 16,400 could be a positive nudge for the bulls on this chart.
We get the CPI and the PPI data this week, and they can be market movers if it sways the Fed's outlook on inflation and interest rates.
The S&P 500 (C-fund) pulled back from the double top area and the top of the bull flag. Not the best look but not terrible either. The negative outside reversal day is a technical red flag for further downside action, so I am concerned about that. A move down to the bottom of the flag or even an attempt to full the open gap from mid-January is still on the table, but for now the green 20-day EMA has held on a modest pullback from the January highs.
DWCPF (S-fund) has been the leading TSP fund this year with the 4.7% gain, but it continues to struggle at the 2400 area. Can it get past that without filling in the open gap down by 2280 first, where the 100-day EMA is also sitting? Does it need another test of that area to push the weaker bulls out of the picture before it attempts new highs again? That may be what the larger trading institutions are trying to get us (retail investors) to do.
ACWX (the I-fund tracking index) is also dealing with overhead resistance after a really nice rally off the lows. The February 3rd sell off was a cleansing act, but it may more more backing and filling before breaking out. That said, triple top resistance isn't usually as firm as a double top.
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
Questions, comments, or issues with today's commentary? We can discuss it in the Forum.
Daily Market Commentary Archives
For more info our other premium services, please go here... www.tsptalk.com/premiums.php
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.
