The Dow made a new closing high yesterday but, after a positive open, it turned out to be a day of rest for the broader indices. Small caps were holding up well for most of the day, but they closed weakly and near their lows of the day. Bonds were down slightly as yields ticked up few notches. The I-fund lagged after dollar was up for just the 2nd time in 7 days. Keep an eye on the semiconductors.
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We had a modest pullback in stocks after Friday's big rally, so no biggie except the bulls may have liked to have seen some post-Fed follow through. The next major catalyst for stock market may be Nvidia's earnings, which come out after the closing bell on Wednesday. They've been market movers, and more often than not, a positive catalyst, and they also are the key component to the semiconductor sector.
The Semis have been one of the market leaders and it's tough for the broader market to rally if they are lagging, which they have been lately, so they've been bucking that trend in recent weeks. The $SOX Index is nowhere near its July high yet, and it may be Nvidia that makes or breaks this index as it tests the 20 and 50-day EMA for support right now.
You can see in this next chart, comparing the $SOX to the S&P 500 ($SPX), that the Semis tend to peak before the S&P 500, so keep an eye on this, and of course everyone will be watching Nvidia's earnings.
I haven't mentioned the Fed balance sheet for a bit, but it is still sinking almost every week. So while the Fed has its sights set on stimulating the economy by cutting interest rates starting next month, they still have their foot on the break when it comes to their balance sheet as they continue their quantitative tightening, and they actually had another pretty big decline last week with a $38 billion reduction.
Meanwhile the Fed is also trying to keep up with the bond market as the 10-year and 2-year Treasury yields are well below the Fed Funds Rate. The 10-year was up a little yesterday but it, and the dollar, are still in a downtrend.
The dollar has been sinking in recent months, and that's a little unusual with the Fed still reducing that balance sheet. It basically says that the market expects Jerome Powell to be more dovish with interest rates than other countries are.
Bottom line, there are some reasons to be defensive while the stock charts are nearing prior highs because of the propensity to see double top pullbacks, but lowering interest rates several times starting in September is attractive to investors. Septembers and Octobers have had their trouble in election years, so it will be an interesting battle between the bulls and the bears over the next month or two. Volatility tend to escalate in the second half of the year during election years.
We'll get the Q2 GDP estimate on Thursday, and then the PCE Prices inflation report on Friday.
Administrative Note: It's time for the 2024 NFL Survivor Contest again. It's a very easy contest to do - just pick one winning team every week and you move on to the next week. As always, it's free and there are prizes awarded to the last survivors. The deadline to register and make your week one pick is the start of the first game this coming Sunday. More information
The S&P 500 (C-fund) is doing some churning since the 8-day winning streak and Friday's post-Fed rally. However the double top and last Thursday's negative outside reversal (NOR) day are still a factor on this chart and the next few days could confirm or refute the NOR formation's infamous bearish reputation. Nvidia and the PCE report could be the catalysts.
The DWCPF (S-fund) was holding up so well most of the day yesterday, but it closed weakly and near the lows of the day. It's also near a test of a double top formation. It remains above that rapidly rising support line, which looks a little too steep to maintain for too long.
The EFA (I-fund) broke below its unsustainable rising support line but it didn't have much of a problem last week, getting above the previous highs. Can the breakout hold, or do those open gaps pose too much of a lure for the bears?
BND (F-fund) banged up against the previous highs again, and again it failed to breakout. No knock down yet, but there is room on the downside if the bond bulls can't push yields lower, and bond prices higher in the coming days. Perhaps it will wait for Friday's PCE data?
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.html
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.
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We had a modest pullback in stocks after Friday's big rally, so no biggie except the bulls may have liked to have seen some post-Fed follow through. The next major catalyst for stock market may be Nvidia's earnings, which come out after the closing bell on Wednesday. They've been market movers, and more often than not, a positive catalyst, and they also are the key component to the semiconductor sector.
The Semis have been one of the market leaders and it's tough for the broader market to rally if they are lagging, which they have been lately, so they've been bucking that trend in recent weeks. The $SOX Index is nowhere near its July high yet, and it may be Nvidia that makes or breaks this index as it tests the 20 and 50-day EMA for support right now.
You can see in this next chart, comparing the $SOX to the S&P 500 ($SPX), that the Semis tend to peak before the S&P 500, so keep an eye on this, and of course everyone will be watching Nvidia's earnings.
I haven't mentioned the Fed balance sheet for a bit, but it is still sinking almost every week. So while the Fed has its sights set on stimulating the economy by cutting interest rates starting next month, they still have their foot on the break when it comes to their balance sheet as they continue their quantitative tightening, and they actually had another pretty big decline last week with a $38 billion reduction.
Meanwhile the Fed is also trying to keep up with the bond market as the 10-year and 2-year Treasury yields are well below the Fed Funds Rate. The 10-year was up a little yesterday but it, and the dollar, are still in a downtrend.
The dollar has been sinking in recent months, and that's a little unusual with the Fed still reducing that balance sheet. It basically says that the market expects Jerome Powell to be more dovish with interest rates than other countries are.
Bottom line, there are some reasons to be defensive while the stock charts are nearing prior highs because of the propensity to see double top pullbacks, but lowering interest rates several times starting in September is attractive to investors. Septembers and Octobers have had their trouble in election years, so it will be an interesting battle between the bulls and the bears over the next month or two. Volatility tend to escalate in the second half of the year during election years.
We'll get the Q2 GDP estimate on Thursday, and then the PCE Prices inflation report on Friday.
Administrative Note: It's time for the 2024 NFL Survivor Contest again. It's a very easy contest to do - just pick one winning team every week and you move on to the next week. As always, it's free and there are prizes awarded to the last survivors. The deadline to register and make your week one pick is the start of the first game this coming Sunday. More information
The S&P 500 (C-fund) is doing some churning since the 8-day winning streak and Friday's post-Fed rally. However the double top and last Thursday's negative outside reversal (NOR) day are still a factor on this chart and the next few days could confirm or refute the NOR formation's infamous bearish reputation. Nvidia and the PCE report could be the catalysts.
The DWCPF (S-fund) was holding up so well most of the day yesterday, but it closed weakly and near the lows of the day. It's also near a test of a double top formation. It remains above that rapidly rising support line, which looks a little too steep to maintain for too long.
The EFA (I-fund) broke below its unsustainable rising support line but it didn't have much of a problem last week, getting above the previous highs. Can the breakout hold, or do those open gaps pose too much of a lure for the bears?
BND (F-fund) banged up against the previous highs again, and again it failed to breakout. No knock down yet, but there is room on the downside if the bond bulls can't push yields lower, and bond prices higher in the coming days. Perhaps it will wait for Friday's PCE data?
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.html
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.
