A late rally helped salvage a rough day on Wall Street after another inflationary economic report. The PPI report was much hotter than expected and stocks, which opened higher, started to sell off. If not for that late rally, it was looking like some kind of a washout day, but support was holding in some key areas. The losses in the three main large cap indices were moderate with each losing near 0.3%, but small caps do not like higher interest rates and bond yields were up big.
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Here is the data from the PPI report from briefing.com:
[TD="align: left"] The February Producer Price Index for final demand (PPI) increased 0.6% month-over-month (Briefing.com consensus 0.3%) following a 0.3% increase in January.
The Producer Price Index for final demand, excluding food and energy (core PPI), increased 0.3% month-over-month (Briefing.com consensus 0.2%) following a 0.5% increase in January.
On a year-over-year basis, PPI was up 1.6% versus 0.9% in January, and core PPI was up 2.0%, unchanged form January.
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Yesterday I said, "The fact that small caps led on this action in yields is encouraging as it may mean interest rates aren't the concern that they had been."
Wrong! That flipped yesterday as the jump in yields did impact the small caps quite negatively. It's not a done deal for the small caps since the chart is still looking OK, but obviously it cannot take repeated punches from higher yields, and perhaps a more hawkish Fed, because of the higher inflationary numbers.
The 10-year Treasury Yield spiked higher so that's four straight increases and it has almost recovered the entire decline from the February highs. But...
... there is more to it than that technically as the increase in the 10-year yield this year is could be just some backing and filling of the free fall in yields from last October through December. It might actually be considered a bear flag, which would eventually break down, but the short term momentum is on the upside until something breaks.
The DWCPF (S-fund) was down sharply on this inflationary data point, but it did bounce late like the other indices, and where it it bounced is almost too perfect. That 30-day EMA has been key support all year. So, is that it on the downside, or does it have to move lower to fill that open gap near 1970 before the pullback is complete?
The dollar also rallied on the strong pricing data, and while this has been pulling back for weeks now, its decline looks like a possible bull flag, which would tend to break to the upside, so what a difference a day makes.
The strong dollar pushed the EFA (I-fund) out of the ascending channel that I was bragging about just yesterday. But I did say yesterday that, "There's not much to dislike here except that a pullback down to the old breakout line near 76.50 is possible, and that would be typical breakout / retest action."
So this could go a couple of ways in the short-term but longer term, this chat looks OK if you can stand some possible short-term pain.
I also posted the chart of the Dow Transportation Index yesterday, which may have contradicted something I said earlier in the week about the Transports' chart. First, the bullish news is that this looks like bullish pennant formation that would typically break to the upside. There was a failed breakout in February but otherwise, this looked good. But...
... I also mentioned earlier in the week that there are bearish looking head and shoulders pattern in there, and the failed breakout on the pennant in the top chart was a key reason for this new bearish development. The two head and shoulders patterns (green and blue) may be the left shoulder and head of a larger head and shoulders (red), which could be a big topping formation. However, even if that happens, a right shoulder could mean higher prices while it develops in the short term.
So many things going on and I am finding the market action very interesting lately. There are great arguments for both the bullish and bearish case, and the long and short term outlooks may be completely different.
The S&P 500 (C-fund) has hit a wall near 5175 but that rising 15-day average has been solid support all year, and it held again yesterday. The 50-day EMA is a long way down and eventually this will get tested, but the average is also rising about 7 points a day right now so even sideways action could help. Every time it gets swatted down it comes right back. If we see something different than that, it would be a warning.
BND (Bonds / F-fund) fell sharply on Thursday and, what we were calling a strong rally one week ago, has turned into a significant pullback. In one day it fell below the 20-day EMA, the 50-day EMA, and the bottom of an open gap, and it is perhaps on the verge of testing that 72 area, which has a double dose of support.
Thanks so much for reading! Have a great weekend!
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
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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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Here is the data from the PPI report from briefing.com:
[TD="align: left"] The February Producer Price Index for final demand (PPI) increased 0.6% month-over-month (Briefing.com consensus 0.3%) following a 0.3% increase in January.
The Producer Price Index for final demand, excluding food and energy (core PPI), increased 0.3% month-over-month (Briefing.com consensus 0.2%) following a 0.5% increase in January.
On a year-over-year basis, PPI was up 1.6% versus 0.9% in January, and core PPI was up 2.0%, unchanged form January.
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[/TD]
Yesterday I said, "The fact that small caps led on this action in yields is encouraging as it may mean interest rates aren't the concern that they had been."
Wrong! That flipped yesterday as the jump in yields did impact the small caps quite negatively. It's not a done deal for the small caps since the chart is still looking OK, but obviously it cannot take repeated punches from higher yields, and perhaps a more hawkish Fed, because of the higher inflationary numbers.
The 10-year Treasury Yield spiked higher so that's four straight increases and it has almost recovered the entire decline from the February highs. But...
... there is more to it than that technically as the increase in the 10-year yield this year is could be just some backing and filling of the free fall in yields from last October through December. It might actually be considered a bear flag, which would eventually break down, but the short term momentum is on the upside until something breaks.
The DWCPF (S-fund) was down sharply on this inflationary data point, but it did bounce late like the other indices, and where it it bounced is almost too perfect. That 30-day EMA has been key support all year. So, is that it on the downside, or does it have to move lower to fill that open gap near 1970 before the pullback is complete?
The dollar also rallied on the strong pricing data, and while this has been pulling back for weeks now, its decline looks like a possible bull flag, which would tend to break to the upside, so what a difference a day makes.
The strong dollar pushed the EFA (I-fund) out of the ascending channel that I was bragging about just yesterday. But I did say yesterday that, "There's not much to dislike here except that a pullback down to the old breakout line near 76.50 is possible, and that would be typical breakout / retest action."
So this could go a couple of ways in the short-term but longer term, this chat looks OK if you can stand some possible short-term pain.
I also posted the chart of the Dow Transportation Index yesterday, which may have contradicted something I said earlier in the week about the Transports' chart. First, the bullish news is that this looks like bullish pennant formation that would typically break to the upside. There was a failed breakout in February but otherwise, this looked good. But...
... I also mentioned earlier in the week that there are bearish looking head and shoulders pattern in there, and the failed breakout on the pennant in the top chart was a key reason for this new bearish development. The two head and shoulders patterns (green and blue) may be the left shoulder and head of a larger head and shoulders (red), which could be a big topping formation. However, even if that happens, a right shoulder could mean higher prices while it develops in the short term.
So many things going on and I am finding the market action very interesting lately. There are great arguments for both the bullish and bearish case, and the long and short term outlooks may be completely different.
The S&P 500 (C-fund) has hit a wall near 5175 but that rising 15-day average has been solid support all year, and it held again yesterday. The 50-day EMA is a long way down and eventually this will get tested, but the average is also rising about 7 points a day right now so even sideways action could help. Every time it gets swatted down it comes right back. If we see something different than that, it would be a warning.
BND (Bonds / F-fund) fell sharply on Thursday and, what we were calling a strong rally one week ago, has turned into a significant pullback. In one day it fell below the 20-day EMA, the 50-day EMA, and the bottom of an open gap, and it is perhaps on the verge of testing that 72 area, which has a double dose of support.
Thanks so much for reading! Have a great weekend!
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.
