Wall Street ended a mixed week for stocks with a gain on Thursday leading into an off day on Friday where we got the March jobs report. There was a gain of 236,000 jobs, slightly less than expected, but February's report was revised slightly higher. The unemployment rate was 3.5%, a tick lower than expected so once again the labor market is holding up rather well given the economic forecasts. The Dow was flat on Thursday but the Nasdaq and S&P 500 saw decent gains. Small caps lagged a bit and the S-fund is off to a weak start in April. The market has yet to react to the jobs report since it was closed on Friday, but the futures did respond positively.
[TABLE="align: center"]
[TR]
[TD="align: center"]
[/TD]
[TD]
[/TD]
[TD="width: 338, align: center"] Daily TSP Funds Return
[/FONT][TABLE="align: center"]
[TR]
[TD="align: right"][/TD]
[/TR]
[/TABLE]
[/TD]
[/TR]
[/TABLE]
There is very little in the financial story that makes me want to be a buyer, but on the other hand the charts and other indications like breadth thrusts are telling a much better story and if anything the S&P 500 and Nasdaq look quite good. Who, or what should we believe?
Despite some very prominent analysts and investors calling for some serious trouble for the financial markets later this year, there is no doubt that right now the stock market is performing quite well, or at least certain indices are as we do see some weakness in some areas like the banking sector, small caps, and even the Transports, and that combination makes it very difficult to understand why the S&P 500 and Nasdaq are performing so well. Price action often precedes the "why" news, which may come out later, but will it be too late for investors who are really only seeing stories like this:
US Bank Lending Slumps by Most on Record in Final Weeks of March
"Commercial bank lending dropped nearly $105 billion in the two weeks ended March 29, the most in Federal Reserve data back to 1973. The more than $45 billion decrease in the latest week was primarily due to a drop in loans by small banks.
"The pullback in total lending in the last half of March was broad and included fewer real estate loans, as well as commercial and industrial loans.
"Friday’s report also showed commercial bank deposits dropped $64.7 billion in the latest week, marking the 10th-straight decrease that mainly reflected a decline at large firms." -- source, Yahoo Finance
Whether the charts outperforming the "story" is actually a positive, or a setup to turn the bears back into bulls before pulling the plug again, I wish I knew. I just know that something doesn't smell right, but with investors still stubbornly bearish, there is ammunition to keep those indices buoyant to frustrate the most people it can.
Yields are falling. Last week the 10-year yield finally closed below the necklines of the double head and shoulders patterns. Falling yields can be a good sign that the Fed will be cutting rates soon, but it would be the product of some difficulties in the economy.
The 2-year Treasury, which the Fed tends to follow, has been down dramatically since the beginning of March and the bear flag suggests it could be going lower. The bad news is this could be the result of an economy that may need some stimulating, but with inflation still somewhat of a concern, how much does the Fed want to stimulate an economy that have been trying to slow down?
The Fed has not cut rates yet, but there is speculation that they could start before the end of the year. I pointed this out last week but here again the charts show that while interest rate cuts do stimulate the economy, it has been an act of panic from the Fed to avoid a crisis. The prior three times they dramatically cut rates the economy was on the brink of financial disasters (dot com bubble, financial crisis, and COVID) and the stock market didn't bottom until the Fed had basically stopped cutting rates. They haven't even started yet.
And this chart shows the 2/10 year yield curve inversions of 2000 and 2006 and the bear markets of the past didn't really begin until the inversions reversed back up. The yield curve is still very much inverted today.
Oil is back over 80 and possibly looking to go higher if it can break through resistance. That isn't good news for consumers, especially when it is up on supply issues rather than higher demand. There is a big open gap below, but also support just below 80 with a possible bull flag forming.
So I'd say we have quite a dilemma as market timers. The action is good in many areas of the market, but the when we look at the financial picture, we're not really seeing anything that would suggest stocks should be rallying like this. But they are, and that could mean we just haven't seen the evidence yet. I'm a little concerned about turning too bullish after the move higher over the last month, because it could be a smoke screen, a setup, and lure, etc., to get us to jump in so the big money can start dumping shares while we're all busy buying. What? Me paranoid?
The S&P 500 (C-fund) has been holding in the 4075 area, which was a peak in early March, however it's those round numbers that look most pivotal with the previous high at 4200, a major peak in December at 4100, and the moving averages are converging near 4000. There's an open gap at 3975 which is also where the old descending resistance line is crossing and could be a pullback target IF stocks do pullback.
The weekly chart of the S&P 500 has been in an uptrend since the October lows, and it did break above the major resistance line (blue dashed), however there is other resistance coming off the recent peaks near 4140 and 4200. And again that 4100 area has been a key pivotal area going back to early 2022.
The DWCPF (S-fund) is still looking very vulnerable, and given the strength in some of the other major indices, it will be very interesting, and hopefully telling, when this chart makes its next major move. The bear flag suggests a breakdown would be coming, but if it can manage to get above 1680 - 1700, that flag would be nullified.
The EFA (I-fund) looks great but how much further can it go with that Swiss cheese of open gaps below?
BND (bonds / F-fund) had a negative reversal and failed breakout on Wednesday of last week, and the falling yields is what is causing this. Perhaps that will trigger a double top pullback but the chart looks good otherwise and we could get some dip buying with 73 being a strong area of support. Of course we have to continue to keep an eye on those open gaps below.
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]
There is very little in the financial story that makes me want to be a buyer, but on the other hand the charts and other indications like breadth thrusts are telling a much better story and if anything the S&P 500 and Nasdaq look quite good. Who, or what should we believe?
Despite some very prominent analysts and investors calling for some serious trouble for the financial markets later this year, there is no doubt that right now the stock market is performing quite well, or at least certain indices are as we do see some weakness in some areas like the banking sector, small caps, and even the Transports, and that combination makes it very difficult to understand why the S&P 500 and Nasdaq are performing so well. Price action often precedes the "why" news, which may come out later, but will it be too late for investors who are really only seeing stories like this:
US Bank Lending Slumps by Most on Record in Final Weeks of March
"Commercial bank lending dropped nearly $105 billion in the two weeks ended March 29, the most in Federal Reserve data back to 1973. The more than $45 billion decrease in the latest week was primarily due to a drop in loans by small banks.
"The pullback in total lending in the last half of March was broad and included fewer real estate loans, as well as commercial and industrial loans.
"Friday’s report also showed commercial bank deposits dropped $64.7 billion in the latest week, marking the 10th-straight decrease that mainly reflected a decline at large firms." -- source, Yahoo Finance
Whether the charts outperforming the "story" is actually a positive, or a setup to turn the bears back into bulls before pulling the plug again, I wish I knew. I just know that something doesn't smell right, but with investors still stubbornly bearish, there is ammunition to keep those indices buoyant to frustrate the most people it can.
Yields are falling. Last week the 10-year yield finally closed below the necklines of the double head and shoulders patterns. Falling yields can be a good sign that the Fed will be cutting rates soon, but it would be the product of some difficulties in the economy.
The 2-year Treasury, which the Fed tends to follow, has been down dramatically since the beginning of March and the bear flag suggests it could be going lower. The bad news is this could be the result of an economy that may need some stimulating, but with inflation still somewhat of a concern, how much does the Fed want to stimulate an economy that have been trying to slow down?
The Fed has not cut rates yet, but there is speculation that they could start before the end of the year. I pointed this out last week but here again the charts show that while interest rate cuts do stimulate the economy, it has been an act of panic from the Fed to avoid a crisis. The prior three times they dramatically cut rates the economy was on the brink of financial disasters (dot com bubble, financial crisis, and COVID) and the stock market didn't bottom until the Fed had basically stopped cutting rates. They haven't even started yet.
And this chart shows the 2/10 year yield curve inversions of 2000 and 2006 and the bear markets of the past didn't really begin until the inversions reversed back up. The yield curve is still very much inverted today.
Oil is back over 80 and possibly looking to go higher if it can break through resistance. That isn't good news for consumers, especially when it is up on supply issues rather than higher demand. There is a big open gap below, but also support just below 80 with a possible bull flag forming.
So I'd say we have quite a dilemma as market timers. The action is good in many areas of the market, but the when we look at the financial picture, we're not really seeing anything that would suggest stocks should be rallying like this. But they are, and that could mean we just haven't seen the evidence yet. I'm a little concerned about turning too bullish after the move higher over the last month, because it could be a smoke screen, a setup, and lure, etc., to get us to jump in so the big money can start dumping shares while we're all busy buying. What? Me paranoid?
The S&P 500 (C-fund) has been holding in the 4075 area, which was a peak in early March, however it's those round numbers that look most pivotal with the previous high at 4200, a major peak in December at 4100, and the moving averages are converging near 4000. There's an open gap at 3975 which is also where the old descending resistance line is crossing and could be a pullback target IF stocks do pullback.
The weekly chart of the S&P 500 has been in an uptrend since the October lows, and it did break above the major resistance line (blue dashed), however there is other resistance coming off the recent peaks near 4140 and 4200. And again that 4100 area has been a key pivotal area going back to early 2022.
The DWCPF (S-fund) is still looking very vulnerable, and given the strength in some of the other major indices, it will be very interesting, and hopefully telling, when this chart makes its next major move. The bear flag suggests a breakdown would be coming, but if it can manage to get above 1680 - 1700, that flag would be nullified.
The EFA (I-fund) looks great but how much further can it go with that Swiss cheese of open gaps below?
BND (bonds / F-fund) had a negative reversal and failed breakout on Wednesday of last week, and the falling yields is what is causing this. Perhaps that will trigger a double top pullback but the chart looks good otherwise and we could get some dip buying with 73 being a strong area of support. Of course we have to continue to keep an eye on those open gaps below.
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.
