Stocks had another positive reversal day yesterday, at least some of the indices as the big three were up early, sold off as the morning wore on, then closed strong. But not all indices and funds were treated equally as the S and I funds were down on the day, and quite significantly in the case of those small caps. Yields were down again but for a second straight day, that didn't help the small caps.
[TABLE="align: center"]
[TR]
[TD="align: center"]
[/TD]
[TD]
[/TD]
[TD="width: 283, align: center"] Daily TSP Funds Return
[TABLE="align: center"]
[TR]
[TD="align: right"][/TD]
[/TR]
[/TABLE]
[/TD]
[/TR]
[/TABLE]
Not that this helps or hurts our analysis, but I put this under the hmmm, category. For the last three trading days, stocks moved lower in the morning, bottomed between 12 noon and 1 PM ET, and then rallied into the close. As I pointed out the other day, this doesn't make it easy for us TSP'ers who have to make a decision by noon ET where to put our money. I don't know why, more than 20 years since they started the noon deadline, they haven't progressed with the rest of the world to allow later or quicker, if not real-time trades. Not that we would be guaranteed to do much better than we are now, but the saying about "whoever has the most information wins" certainly is saying we are not in a fair fight with those who do have the ability to make real-time trades.
What we see happening before our deadline is not what is happening when our trades are executed at 4 PM.
I find the recent action very intriguing. Some stock charts are improving. Some are deteriorating. We see the indices showing strength, yet internally there is some weakness. I think we may finally be seeing the effects of a 5% increase in interest rates over the last couple of years as the economic data is finally showing meaningful signs of weakening and that's putting pressure on those small caps. The Fed loves it because this was their intent while trying to control inflation.
Yields are moving lower in recent trading, yet it's not helping small caps anymore. The 10-year Treasury Yield has been down for four straight days after some strength in April and May. Now it seems to be at a crucial juncture. The 4.35% area has been in the picture for a long time, but it's not so much about the level, but the direction and the speed at which it is moving, as you can see in the comparison with the 10-year yield and the S&P 500 below it.
But if yields start falling because economic data is weakening quickly, rather than because inflation is getting better, then the stock market may not be as happy about lower yields. So the stock market doesn't want yields rallying quickly, which has been the case for a while now, but I also think the market won't like them falling too quickly either - or at least it won't like the reason they might fall quickly. The best bet might be seeing the 10-year remain stable in the 4.25% to 4.75% area.
The dollar broke down on Monday and it was basically flat yesterday. This is looking more like a serious trend change and is likely due to the weaker economic data. It's not the Fed doing this as they have been steadily reducing their balance sheet, which should be strengthening the dollar.
Yeah, there's a lot going on out there and there are good cases for both sides of the market - the bullish and bearish sides. If the 10-year yield does break down below that 4.35% area we could see bonds start outperforming stocks. That's something we haven't seen in a while.
I saw this on CNBC where the S&P 500 to bonds ratio had gotten quite extreme, but the trend may be trying to break with a lot of open air to the next support line. This goes up when the S&P 500 is leading bonds, and down when bonds are leading the S&P.
We get the May jobs report on Friday. Estimates are looking for a gain of 185,000 jobs and an unemployment rate of 3.9%.
The S&P 500 (C-fund) chart has a lot going on. We have the April comparison still hanging in there - although it is modestly stronger right now compared to April. The PMO indicator is now crossing below its moving average, although flattening. The volume spike still suggests a possible true low, but we could still see a retest of that low, preferably on lighter volume.
DWCPF (S-fund) has been lagging and breaking some support after the weaker economic data started to come out. It's not a deal breaker yet as there is still a chance that the current pullback is just a right shoulder forming in an inverted head and shoulders pattern. The 1950 area would be the bottom of that blue parallel channel.
The EFA (I-fund) has been showing relative strength compared to the other funds recently, and the break down in the dollar is certainly a factor.
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
For more info our other premium services, please go here... www.tsptalk.com/premiums.html
Daily Market Commentary Archives
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.
[TABLE="align: center"]
[TR]
[TD="align: center"]
[TD]
[/TD]
[TD="width: 283, align: center"] Daily TSP Funds Return
[TR]
[TD="align: right"][/TD]
[/TR]
[/TABLE]
[/TD]
[/TR]
[/TABLE]
Not that this helps or hurts our analysis, but I put this under the hmmm, category. For the last three trading days, stocks moved lower in the morning, bottomed between 12 noon and 1 PM ET, and then rallied into the close. As I pointed out the other day, this doesn't make it easy for us TSP'ers who have to make a decision by noon ET where to put our money. I don't know why, more than 20 years since they started the noon deadline, they haven't progressed with the rest of the world to allow later or quicker, if not real-time trades. Not that we would be guaranteed to do much better than we are now, but the saying about "whoever has the most information wins" certainly is saying we are not in a fair fight with those who do have the ability to make real-time trades.
What we see happening before our deadline is not what is happening when our trades are executed at 4 PM.
I find the recent action very intriguing. Some stock charts are improving. Some are deteriorating. We see the indices showing strength, yet internally there is some weakness. I think we may finally be seeing the effects of a 5% increase in interest rates over the last couple of years as the economic data is finally showing meaningful signs of weakening and that's putting pressure on those small caps. The Fed loves it because this was their intent while trying to control inflation.
Yields are moving lower in recent trading, yet it's not helping small caps anymore. The 10-year Treasury Yield has been down for four straight days after some strength in April and May. Now it seems to be at a crucial juncture. The 4.35% area has been in the picture for a long time, but it's not so much about the level, but the direction and the speed at which it is moving, as you can see in the comparison with the 10-year yield and the S&P 500 below it.
But if yields start falling because economic data is weakening quickly, rather than because inflation is getting better, then the stock market may not be as happy about lower yields. So the stock market doesn't want yields rallying quickly, which has been the case for a while now, but I also think the market won't like them falling too quickly either - or at least it won't like the reason they might fall quickly. The best bet might be seeing the 10-year remain stable in the 4.25% to 4.75% area.
The dollar broke down on Monday and it was basically flat yesterday. This is looking more like a serious trend change and is likely due to the weaker economic data. It's not the Fed doing this as they have been steadily reducing their balance sheet, which should be strengthening the dollar.
Yeah, there's a lot going on out there and there are good cases for both sides of the market - the bullish and bearish sides. If the 10-year yield does break down below that 4.35% area we could see bonds start outperforming stocks. That's something we haven't seen in a while.
I saw this on CNBC where the S&P 500 to bonds ratio had gotten quite extreme, but the trend may be trying to break with a lot of open air to the next support line. This goes up when the S&P 500 is leading bonds, and down when bonds are leading the S&P.
We get the May jobs report on Friday. Estimates are looking for a gain of 185,000 jobs and an unemployment rate of 3.9%.
The S&P 500 (C-fund) chart has a lot going on. We have the April comparison still hanging in there - although it is modestly stronger right now compared to April. The PMO indicator is now crossing below its moving average, although flattening. The volume spike still suggests a possible true low, but we could still see a retest of that low, preferably on lighter volume.
DWCPF (S-fund) has been lagging and breaking some support after the weaker economic data started to come out. It's not a deal breaker yet as there is still a chance that the current pullback is just a right shoulder forming in an inverted head and shoulders pattern. The 1950 area would be the bottom of that blue parallel channel.
The EFA (I-fund) has been showing relative strength compared to the other funds recently, and the break down in the dollar is certainly a factor.
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
For more info our other premium services, please go here... www.tsptalk.com/premiums.html
Daily Market Commentary Archives
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.
