Stocks caught a bid after a weak morning of trading, and while the rebound off the lows created a modest positive reversal look on the charts, the indices couldn't push into positive territory by the close with the FOMC meeting looming today. The Dow shed 107-points, which was a couple of hundred points off the lows, and the S&P, which bounced off of some longer-term support at its lows, lost 0.22%. The Nasdaq and large cap tech didn't help yesterday, despite Apple closing with a second straight gain.
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The FOMC meeting wraps up today and the Fed will give their policy statement around 2 PM ET. There is virtually no chance of a change in rates today according to market probabilities, but perhaps Powell will give us some clues in the presser afterward about what they plan to do at the November 1st meeting, where the market is currently pricing in a 29% chance of another rate hike.
The 10-year Treasury Yield continues to inch higher and yesterday it banged its head against the prior high again, but this time it made a closing high. "Higher for longer" seems to be the mantra on Wall Street as analysts are not expecting the Fed to cut rates any time soon. Perhaps for the better since, as we talked about on Monday, historically when they do start to cut rates and the yield curve starts to steepen, the stock market doesn't tend to do well.
Oil is on the radar as it recently move over $90 a barrel for the first time this year, making a new intraday high yesterday and of course that raises gasoline prices and the consumer has to adjust to this higher expense. Yesterday the chart made a mini negative reversal day at the top of the current parallel trading channel, so maybe there will be at least some short-term relief after moving straight up from $77 just a month ago.
The Dow Transportation Index, which could be reacting to the higher price of oil, has been in an ugly downtrend after reversing on a dime at the late July peak. This index is very sensitive to economic conditions, but it had gone straight up in June and July and maybe it just needed to digest some of the 2000-point move?
One interesting technical note here is the head and shoulders pattern that we saw on the Transports earlier this year...
I have been talking recently about how head and shoulders patterns don't always break down, particularly when the action before the formation was bullish. That was being said in context to the DWCPF (S-fund) chart which has been building a head and shoulders pattern for months. Most traders believe this is a bearish formation, and it can be, but not in every situation. When in a positive trending market they can be continuation patterns, eventually breaking in the direction that the chart was going before the H&S pattern started. On this S-fund chart however, I am concerned that the open gap near 1670 could be a draw on the downside. We'll just have to see how this plays out.
The Fed is on deck. Are you buckled up?
The S&P 500 (C-fund) was down but you can see in the chart that it bounced right after it tested the rising support line. It could quite close above the 50-day EMA but that was a quasi-positive reversal day because it opened and closed well off the lows. It wasn't an official positive reversal day because of the close in negative territory. The pennant grows longer and don't forget that these formation often give us fake outs in one direction or the other before fully breaking in the other direction, making it tough to negotiate. So if we see a quick spike above 4500 or below 4400 in the coming days, it may turn out to be a false move.
EFA (I-fund) has been quite choppy in recent days as it filled some open gaps. It managed to close with a gain and above the 20-day EMA, but it also closed below the 50-day EMA again. Not the best looking chart but it continues to hold above the 200-day EMA after a successful test a month ago.
BND (Bonds / F-fund) was down again as yields remain stubbornly high. The Fed will likely dictate the move this chart makes temporarily, but the bond market probably has more influence on the Fed, then the Fed has on the bond market. That open gap near 70.40 is still there to be filled and any volatility today might take care of that - no matter where it closes. There's other support in that area and we could see a double bottom down here, but the chart in general looks vulnerable.
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.
Like what you're seeing on TSP Talk? Why not Tell a Friend about us? We'd really appreciate it, and they may too.
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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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The FOMC meeting wraps up today and the Fed will give their policy statement around 2 PM ET. There is virtually no chance of a change in rates today according to market probabilities, but perhaps Powell will give us some clues in the presser afterward about what they plan to do at the November 1st meeting, where the market is currently pricing in a 29% chance of another rate hike.
The 10-year Treasury Yield continues to inch higher and yesterday it banged its head against the prior high again, but this time it made a closing high. "Higher for longer" seems to be the mantra on Wall Street as analysts are not expecting the Fed to cut rates any time soon. Perhaps for the better since, as we talked about on Monday, historically when they do start to cut rates and the yield curve starts to steepen, the stock market doesn't tend to do well.
Oil is on the radar as it recently move over $90 a barrel for the first time this year, making a new intraday high yesterday and of course that raises gasoline prices and the consumer has to adjust to this higher expense. Yesterday the chart made a mini negative reversal day at the top of the current parallel trading channel, so maybe there will be at least some short-term relief after moving straight up from $77 just a month ago.
The Dow Transportation Index, which could be reacting to the higher price of oil, has been in an ugly downtrend after reversing on a dime at the late July peak. This index is very sensitive to economic conditions, but it had gone straight up in June and July and maybe it just needed to digest some of the 2000-point move?
One interesting technical note here is the head and shoulders pattern that we saw on the Transports earlier this year...
I have been talking recently about how head and shoulders patterns don't always break down, particularly when the action before the formation was bullish. That was being said in context to the DWCPF (S-fund) chart which has been building a head and shoulders pattern for months. Most traders believe this is a bearish formation, and it can be, but not in every situation. When in a positive trending market they can be continuation patterns, eventually breaking in the direction that the chart was going before the H&S pattern started. On this S-fund chart however, I am concerned that the open gap near 1670 could be a draw on the downside. We'll just have to see how this plays out.
The Fed is on deck. Are you buckled up?
The S&P 500 (C-fund) was down but you can see in the chart that it bounced right after it tested the rising support line. It could quite close above the 50-day EMA but that was a quasi-positive reversal day because it opened and closed well off the lows. It wasn't an official positive reversal day because of the close in negative territory. The pennant grows longer and don't forget that these formation often give us fake outs in one direction or the other before fully breaking in the other direction, making it tough to negotiate. So if we see a quick spike above 4500 or below 4400 in the coming days, it may turn out to be a false move.
EFA (I-fund) has been quite choppy in recent days as it filled some open gaps. It managed to close with a gain and above the 20-day EMA, but it also closed below the 50-day EMA again. Not the best looking chart but it continues to hold above the 200-day EMA after a successful test a month ago.
BND (Bonds / F-fund) was down again as yields remain stubbornly high. The Fed will likely dictate the move this chart makes temporarily, but the bond market probably has more influence on the Fed, then the Fed has on the bond market. That open gap near 70.40 is still there to be filled and any volatility today might take care of that - no matter where it closes. There's other support in that area and we could see a double bottom down here, but the chart in general looks vulnerable.
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.
Like what you're seeing on TSP Talk? Why not Tell a Friend about us? We'd really appreciate it, and they may too.
Thanks!
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.
