The 1st quarter ended with an exclamation point as the Dow gained 415-points, small caps jumped 2%, and the bulls have seemingly taken full control. It was a quarter that saw the small caps have a great January, but things turned around in March after the banking issues, and now it's the I and and C-funds leading the way for the year, but here comes a new month and a new quarter and the bears may have something to say after lying down for the last couple of weeks. Bonds rallied as yields are near the brink of a breakdown a the market prepares for a potential pivot from the Fed.
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The new month / quarter, new direction theory is in play although there is often new money coming into the market on the first day or two. Last April was a very bad month for stocks but they were actually up the first two days.
The action has been unbelievable. I mean that in a good way, but also in a skeptical way. You can't deny that the charts have improved greatly. The stock market seems to be looking forward to ... something, because looking back in the rear-view or even the side windows, does anyone feel like the world and the financial sector is in good shape?
Sentiment surveys of all kinds tell us that many investors had gotten very bearish, and that can trigger oversold rallies. They've gotten a little more bullish recently because of the action, but still there's an overall bearish tone out there, and why not considering the financial issues? So the question for those who have been bearish is whether to chase this rally, or be patient and wait for some kind of a pullback? And for those who have caught this recent ride higher in stocks, the question is whether to take profits, or let it ride?
I'm just going to throw a few things at the wall that I was looking at this weekend and see what sticks, or in your case, see if it helps give you some help for your situation.
The 10-year Yield has been falling due to the weakening economic conditions, which should be impacting the Fed and their outlook on interest rates, and that is one of the main reasons that stocks are doing well. The market expects lower interest rates. Will that 200-day EMA hold, or is it due for a rebound?
Having raised rates for the last year, at least the Fed has some ammunition now. When interest rates were 0% they couldn't cut rates to stimulate the economy. Now that the Fed funds rate is over 4%, they have some options to help a stalling economy.
The 2-year and the 10-year Treasury Yield Curve has been inverted since last July, after a brief inversion in April of 2022. That means shorter term bond yields are paying higher returns than longer term yields, which is not typical and historically signals some economic turmoil is brewing. So far, other than inflation, the economy has not suffered much weakness, but many economist are forecasting a recession before the end of the year. For this reason, they also expect the Fed could be cutting interest rates before the end of the year after their rapid rate hikes may have impacted the economy negatively.
We got the PCE Price Report on Friday and it came in a little better than expected, meaning prices went higher compared to last year at this time, but not quite as much as was anticipated. The trend has been coming down, but you can see that it is still well over the Fed's inflation target rate of 2%.
In this recent rally in stocks, in this case the S&P 500, we have seen a very strong move off the October lows, and a couple of times this year we saw the descending resistance line broken. That's great and a new bull market would have to start with something like this happening. However...
... we also had a few false breakouts in 2008, and you can imagine that investors were equally as thrilled to see the end of the bear market in the spring of 2008, that is until it wasn't over when the breakout failed terribly before that bear market was over.
The banking sector is not fully participating in the rally, and I think we better keep an eye on Schwab. With $3.7 trillion in assets, this stock has been barely holding onto the bottom of a wide trading channel. The precipitous decline has some worried that they could be the next to announce serious problems in staying afloat.
So while the stock market has been enjoying a major bounce back rally, the banking sector has not been participating, and we better keep an eye on this because the stock market likely won't survive another major bank failure or a further breakdown in the sector.
Finally, this is a tweet posted on April 1 by some called The Prepared Homestead. It's a weekly recap of things that have happened around the financial world in just the last seven days while stocks were soaring higher. Spoiler alert, the dollar could be in trouble. It's a long list so I will just post a link.
Here's the tweet source directly on Twitter: https://twitter.com/ThePreparedHom1/status/1642292385563439106?t=deY_WLkBTZJwcgbLgynH8A&s=19
But if you don't have access to that for some reason, I also posted it in our forum HERE:
So there are still some concerns, and there always are. Things tend to look their best at market tops, and the worst at the bottoms. The dichotomy of the strength in stocks and the struggles of the banks may come to a head in this second quarter, along with whether the economy shows signs of falling into a recession or not. Buckle up. It probably won't be as easy as it seemed in late March.
The S&P 500 (C-fund) starts the new month and new quarter at a one month high and above 4100. 4100 - 4200 has been a tricky area for the bulls over the last year as it has been the top of a large trading range. After a major downside fake out on the previous Friday, pushing the S&P 500 below the 200-day MA and the rising support line, stocks turned around and continued to rally off the March 13th low. There is an open gap near 3975 that will keep the bulls looking over their shoulders.
The DWCPF (S-fund) had a big day and a big week last week, and it is doing so while the bank stocks, which took the S-fund lower earlier in the month, try to recover, but as I showed above, those charts are still in some trouble. So the question is whether the S-fund can continue rally if the bank stocks can't improve.
The EFA (I-fund) gapped up higher for a 3rd straight day on Friday, and a 4th time in the last five days. That's makes a total of five open gaps down to the 67.50 area. This chart is a little different than the US stock index chart in that the action occurs overnight, and that causes more gaps on this US ETF chart, but they do still tend to get filled eventually, so while this looks very bullish, if those gaps do get filled, I wouldn't want to be in the I-fund when it happens.
BND (bonds / F-fund) rallied on the move lower in yields. A weak economy will mean lower yields and higher priced for the F-fund. There is a little more open gap to fill up near 74, but the overhead resistance and the open gap way down near 72 means there is a perhaps more technical room on the downside, than up.
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]
The new month / quarter, new direction theory is in play although there is often new money coming into the market on the first day or two. Last April was a very bad month for stocks but they were actually up the first two days.
The action has been unbelievable. I mean that in a good way, but also in a skeptical way. You can't deny that the charts have improved greatly. The stock market seems to be looking forward to ... something, because looking back in the rear-view or even the side windows, does anyone feel like the world and the financial sector is in good shape?
Sentiment surveys of all kinds tell us that many investors had gotten very bearish, and that can trigger oversold rallies. They've gotten a little more bullish recently because of the action, but still there's an overall bearish tone out there, and why not considering the financial issues? So the question for those who have been bearish is whether to chase this rally, or be patient and wait for some kind of a pullback? And for those who have caught this recent ride higher in stocks, the question is whether to take profits, or let it ride?
I'm just going to throw a few things at the wall that I was looking at this weekend and see what sticks, or in your case, see if it helps give you some help for your situation.
The 10-year Yield has been falling due to the weakening economic conditions, which should be impacting the Fed and their outlook on interest rates, and that is one of the main reasons that stocks are doing well. The market expects lower interest rates. Will that 200-day EMA hold, or is it due for a rebound?
Having raised rates for the last year, at least the Fed has some ammunition now. When interest rates were 0% they couldn't cut rates to stimulate the economy. Now that the Fed funds rate is over 4%, they have some options to help a stalling economy.
The 2-year and the 10-year Treasury Yield Curve has been inverted since last July, after a brief inversion in April of 2022. That means shorter term bond yields are paying higher returns than longer term yields, which is not typical and historically signals some economic turmoil is brewing. So far, other than inflation, the economy has not suffered much weakness, but many economist are forecasting a recession before the end of the year. For this reason, they also expect the Fed could be cutting interest rates before the end of the year after their rapid rate hikes may have impacted the economy negatively.
We got the PCE Price Report on Friday and it came in a little better than expected, meaning prices went higher compared to last year at this time, but not quite as much as was anticipated. The trend has been coming down, but you can see that it is still well over the Fed's inflation target rate of 2%.
In this recent rally in stocks, in this case the S&P 500, we have seen a very strong move off the October lows, and a couple of times this year we saw the descending resistance line broken. That's great and a new bull market would have to start with something like this happening. However...
... we also had a few false breakouts in 2008, and you can imagine that investors were equally as thrilled to see the end of the bear market in the spring of 2008, that is until it wasn't over when the breakout failed terribly before that bear market was over.
The banking sector is not fully participating in the rally, and I think we better keep an eye on Schwab. With $3.7 trillion in assets, this stock has been barely holding onto the bottom of a wide trading channel. The precipitous decline has some worried that they could be the next to announce serious problems in staying afloat.
So while the stock market has been enjoying a major bounce back rally, the banking sector has not been participating, and we better keep an eye on this because the stock market likely won't survive another major bank failure or a further breakdown in the sector.
Finally, this is a tweet posted on April 1 by some called The Prepared Homestead. It's a weekly recap of things that have happened around the financial world in just the last seven days while stocks were soaring higher. Spoiler alert, the dollar could be in trouble. It's a long list so I will just post a link.
Here's the tweet source directly on Twitter: https://twitter.com/ThePreparedHom1/status/1642292385563439106?t=deY_WLkBTZJwcgbLgynH8A&s=19
But if you don't have access to that for some reason, I also posted it in our forum HERE:
So there are still some concerns, and there always are. Things tend to look their best at market tops, and the worst at the bottoms. The dichotomy of the strength in stocks and the struggles of the banks may come to a head in this second quarter, along with whether the economy shows signs of falling into a recession or not. Buckle up. It probably won't be as easy as it seemed in late March.
The S&P 500 (C-fund) starts the new month and new quarter at a one month high and above 4100. 4100 - 4200 has been a tricky area for the bulls over the last year as it has been the top of a large trading range. After a major downside fake out on the previous Friday, pushing the S&P 500 below the 200-day MA and the rising support line, stocks turned around and continued to rally off the March 13th low. There is an open gap near 3975 that will keep the bulls looking over their shoulders.
The DWCPF (S-fund) had a big day and a big week last week, and it is doing so while the bank stocks, which took the S-fund lower earlier in the month, try to recover, but as I showed above, those charts are still in some trouble. So the question is whether the S-fund can continue rally if the bank stocks can't improve.
The EFA (I-fund) gapped up higher for a 3rd straight day on Friday, and a 4th time in the last five days. That's makes a total of five open gaps down to the 67.50 area. This chart is a little different than the US stock index chart in that the action occurs overnight, and that causes more gaps on this US ETF chart, but they do still tend to get filled eventually, so while this looks very bullish, if those gaps do get filled, I wouldn't want to be in the I-fund when it happens.
BND (bonds / F-fund) rallied on the move lower in yields. A weak economy will mean lower yields and higher priced for the F-fund. There is a little more open gap to fill up near 74, but the overhead resistance and the open gap way down near 72 means there is a perhaps more technical room on the downside, than up.
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.
