Despite sideways to lower action in all of the TSP stock funds last week, we curiously saw stocks being bought late in the day creating a third consecutive positive reversal day on Friday. Looking at the glass as half full, the bulls may be trying to take charge again, but the half empty viewpoint is that the S&P 500 has only been up 3 of the 7 trading days in May so far. A pop in the dollar last week held back the 2023 leading I-fund, but it still held up best with 0.65% loss. Bonds have suffered the same fate with a weekly and monthly loss heading into this week.
[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]
The various indices have all had a mind of their own in recent months. I hate to focus so much on the S&P 500 (C-fund) in this environment since it has been behaving quite differently than the small caps' S-fund, and even I-fund for months, but, today let's see what the S&P 500 chart may be trying to tell us. Maybe tomorrow I will focus on the S-fund, which looks like it should be avoided right now, but it has the most to gain if it tries to play any kind of catch up.
The S&P 500 (C-fund) has been hanging around the 4100 - 4175 area for weeks now, with a couple of brief spikes above and below that range. This could be some kind of a bull flag forming, and / or the right shoulder of an inverted head and shoulders pattern. Both are generally considered bullish formations but with the current questionable economic outlook, debt ceiling deadline approaching, and the current higher interest rate environment, investor sentiment has been getting quite bearish again and the question is if the this bullish looking chart has the strength to finally bust through overhead resistance.
The theory of bull flags and shoulders being formed is that they are digesting the action that brought them up to these resistance areas, and potentially gaining the strength needed to break out. Going forward, the negative fundamental environment will be testing the more bullish chart set up - at least on this chart. The PMO indicator has developed a modestly negative divergence with its recent lower high.
Looking at a longer-term view, we saw the descending resistance line get broken to the upside in late 2022, then held on a pullback when tested in March. That action created a new rising trading channel (blue), and now here the S&P sits in the middle of that channel, and just north of that 4100 - 4200 range that has really been in the picture for more than two years.
The weekly chart confirms all of this. If there's any difference to this current action it is that prior peaks were pointed and reversed down quickly. This current action is more rounded and that 4100 area has held on a closing basis since about mid-March. I've circled several "kangaroo tail" reversals - blue being positive reversals and red being negative. This past week's candlestick was not a reversal but more of a spinning top which is often considered a sign of a potential reversal, but I would say the two prior positive reversal formations are still in play.
The monthly chart still looks mostly bullish given that the S&P 500 is trading above the 200 and 50-month moving averages. It doesn't have to stay above those lines but while it is up there dip buyers are probably more likely to show up. If or when it falls below those moving averages, as we saw a few times over the last 25 years, the downside can really accelerate. But as is, this looks like bullish behavior - for whatever reason that might be.
And speaking of bullish behavior, the Nasdaq broke out from its cup and handle formation and above a couple of resistance lines last week. No matter what we say about the S&P 500 or those lagging small caps and Transportation index, this Nasdaq chart is showing classic bullish activity. How this does or doesn't bleed into the rest of the market, I don't know. I just wish we had a TSP fund that could focus on the Nasdaq right about now. I know we do have a lot of various options with the new mutual funds, but the additions fees and extra steps needed to use them have discouraged me from trying. Maybe some day I will take that leap.
Yields are dull, I know, but since the stock market is obsessed with interest rates, and the Fed watches bond yields very closely, we have to watch them. The Fed is very focused on the the yield on the 2-year Treasury Note as it is one of the better indications of short-term economic activity. Because of this, the Fed Funds Interest Rate tends to follow the 2-year note, and right now the Fed Funds rate is a full 1% above the 2-year yield. I'm sure anything can happen, but this suggests the fed may be done raising, as most suspect, but it also may be suggesting that the Fed may have to start lowering rates to get more inline with the 2-year yield.
Here's a longer term view of the comparison. They don't move together tick for for tick, but rather we can see some long lag time in between. However, it's pretty clear that the red line, which is the Fed Funds Rate, is lagging the 2-year, and currently the 2-year is a full 1% below the Fed Funds Rate, as I said. That red line is only updated through March 31 so the 4.83% that it shows is actually over 5% now.
Other than retail sales and some housing data, it will be a relative slow week for economic data this week.
The DWCPF (S-fund) charts looks completely different than the S&P 500 and Nasdaq charts. It looks a lot more dubious, although it is flirting with a possible breakout above the descending resistance line, which could be the neckline of some sort of odd, slanted inverted head and shoulders pattern. The 50-day EMA held on another failed attempt to get above it last week.
The EFA (I-fund) was down last week, but it is still stubbornly holding above the old breakout area and that 20-day EMA. The recent strength in the dollar isn't helping and the fate of the I-fund in the short term may be determined by whether that open gap on the dollar (UUP) gets filled and reverses back down, or if it continues higher. A weaker dollar helps the I-fund.
BND (Bonds / F-fund) has been consolidating sideways for a couple of months now as investors digest the plethora of economic data and their possibilities. There's an open gap immediately below Friday's close, and then some support in the form of the 50-day EMA and the bottom of a flag formation that looks like a possible F-flag, which would be more bearish than a downward slanting bull flag. The normally savvy bond market seems as uncertain about the current trend as the stock 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.
[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 various indices have all had a mind of their own in recent months. I hate to focus so much on the S&P 500 (C-fund) in this environment since it has been behaving quite differently than the small caps' S-fund, and even I-fund for months, but, today let's see what the S&P 500 chart may be trying to tell us. Maybe tomorrow I will focus on the S-fund, which looks like it should be avoided right now, but it has the most to gain if it tries to play any kind of catch up.
The S&P 500 (C-fund) has been hanging around the 4100 - 4175 area for weeks now, with a couple of brief spikes above and below that range. This could be some kind of a bull flag forming, and / or the right shoulder of an inverted head and shoulders pattern. Both are generally considered bullish formations but with the current questionable economic outlook, debt ceiling deadline approaching, and the current higher interest rate environment, investor sentiment has been getting quite bearish again and the question is if the this bullish looking chart has the strength to finally bust through overhead resistance.
The theory of bull flags and shoulders being formed is that they are digesting the action that brought them up to these resistance areas, and potentially gaining the strength needed to break out. Going forward, the negative fundamental environment will be testing the more bullish chart set up - at least on this chart. The PMO indicator has developed a modestly negative divergence with its recent lower high.
Looking at a longer-term view, we saw the descending resistance line get broken to the upside in late 2022, then held on a pullback when tested in March. That action created a new rising trading channel (blue), and now here the S&P sits in the middle of that channel, and just north of that 4100 - 4200 range that has really been in the picture for more than two years.
The weekly chart confirms all of this. If there's any difference to this current action it is that prior peaks were pointed and reversed down quickly. This current action is more rounded and that 4100 area has held on a closing basis since about mid-March. I've circled several "kangaroo tail" reversals - blue being positive reversals and red being negative. This past week's candlestick was not a reversal but more of a spinning top which is often considered a sign of a potential reversal, but I would say the two prior positive reversal formations are still in play.
The monthly chart still looks mostly bullish given that the S&P 500 is trading above the 200 and 50-month moving averages. It doesn't have to stay above those lines but while it is up there dip buyers are probably more likely to show up. If or when it falls below those moving averages, as we saw a few times over the last 25 years, the downside can really accelerate. But as is, this looks like bullish behavior - for whatever reason that might be.
And speaking of bullish behavior, the Nasdaq broke out from its cup and handle formation and above a couple of resistance lines last week. No matter what we say about the S&P 500 or those lagging small caps and Transportation index, this Nasdaq chart is showing classic bullish activity. How this does or doesn't bleed into the rest of the market, I don't know. I just wish we had a TSP fund that could focus on the Nasdaq right about now. I know we do have a lot of various options with the new mutual funds, but the additions fees and extra steps needed to use them have discouraged me from trying. Maybe some day I will take that leap.
Yields are dull, I know, but since the stock market is obsessed with interest rates, and the Fed watches bond yields very closely, we have to watch them. The Fed is very focused on the the yield on the 2-year Treasury Note as it is one of the better indications of short-term economic activity. Because of this, the Fed Funds Interest Rate tends to follow the 2-year note, and right now the Fed Funds rate is a full 1% above the 2-year yield. I'm sure anything can happen, but this suggests the fed may be done raising, as most suspect, but it also may be suggesting that the Fed may have to start lowering rates to get more inline with the 2-year yield.
Here's a longer term view of the comparison. They don't move together tick for for tick, but rather we can see some long lag time in between. However, it's pretty clear that the red line, which is the Fed Funds Rate, is lagging the 2-year, and currently the 2-year is a full 1% below the Fed Funds Rate, as I said. That red line is only updated through March 31 so the 4.83% that it shows is actually over 5% now.
Other than retail sales and some housing data, it will be a relative slow week for economic data this week.
The DWCPF (S-fund) charts looks completely different than the S&P 500 and Nasdaq charts. It looks a lot more dubious, although it is flirting with a possible breakout above the descending resistance line, which could be the neckline of some sort of odd, slanted inverted head and shoulders pattern. The 50-day EMA held on another failed attempt to get above it last week.
The EFA (I-fund) was down last week, but it is still stubbornly holding above the old breakout area and that 20-day EMA. The recent strength in the dollar isn't helping and the fate of the I-fund in the short term may be determined by whether that open gap on the dollar (UUP) gets filled and reverses back down, or if it continues higher. A weaker dollar helps the I-fund.
BND (Bonds / F-fund) has been consolidating sideways for a couple of months now as investors digest the plethora of economic data and their possibilities. There's an open gap immediately below Friday's close, and then some support in the form of the 50-day EMA and the bottom of a flag formation that looks like a possible F-flag, which would be more bearish than a downward slanting bull flag. The normally savvy bond market seems as uncertain about the current trend as the stock 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.
