A normally uninteresting Producer Price Index report came out yesterday, and not only was it better than expected, but it was down sharply where estimates were for higher prices (-0.5% actual vs. +0.01% est.) This got the bulls' attention and perhaps some capitulation from some stubborn bears and we got a strong rally off that data which, unlike the CPI report on Wednesday, held into the close. The Dow gained 384-points and we saw a gain of 1% to 2% through most of the indices, although the economically sensitive Transportation Index did not participate. The S&P 500 closed at its highest level since February.
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The inflation picture continues to improve, and the rally might suggest that investors are cheering a possible pause in rate hikes from the Fed, but perhaps surprisingly, there wasn't as much of a change in the target rate probability for the next FOMC meeting as we might expect. As a matter of fact, the chances of a 0.25% interest rate higher is still higher than it was a week ago. There was just a minor 1.4% decline day over day of a hike.
I've been saying this for a while now that the price action is suggesting something good is coming around the corner; something most of us are not seeing. Unfortunately, a potential recession is also coming, and we all see that. So why are stocks rallying?
Part of me says, this is ridiculous and this is a great opportunity, not only to raise cash if you own stocks, but also to bet against stocks, which of course is very risky, but you'd make money on the way down (outside of the TSP funds.)
Another part of me sees the action and realizes that I have no idea what is coming around that corner, but apparently it is good, and I should probably respect that.
The banks will start reporting earnings this morning. There are two lines of thinking when it comes to what to expect.
One is that the banks have taken a big hit this year and the financial and bank stocks are trading near their lows, so the negatives are priced in and any upside surprises in earnings might trigger a big rally. Options traders are actually betting more on the bullish side of the banks, and that could be a sign of an upcoming rally.
On the other hand, while banks were pricing in the individual bank failures and lower yields which hurt profits, have they priced in the potential for a recession yet? Most companies like to put a positive spin on their reports so it will be interesting to hear these banks' forecasts and guidance for the next few quarters, when many are expecting to see the evidence of the recession.
The bond market never fails to baffle me. While inflation concerns are waning after that PPI report, and chances of a recession are increasing, you would expect yields to fall, but the 10-year Treasury yield closed at its highest level in two week yesterday.
The dollar was down again, and has been in a free fall since testing and failing at the 50-day EMA on Monday. This again gave the I-fund a boost on the day.
I want to apologize to my TSP Talk Plus subscribers who get our ETF text alerts. What a disaster yesterday as I had a typo in symbol in the first alert. Then, when sending a correction, I was confusing two ETFs, which are very similar, but different by one letter. I was considering both and looking at both charts all morning trying to determine which to use. Both are "betting" on the same thing but one was a leveraged ETF, and one was not. So let me just say I am sorry for that confusion and melt down yesterday.
We will get the monthly retail sales report this morning. Boeing was down sharply after hours yesterday and that could weigh on the Dow today.
The S&P 500 (C-fund) got a PPI boost to a higher high, and the highest close since mid-February. It's now within about 50 points of the February highs. What makes this most interesting is...
... the DWCPF (S-fund) looks completely different. In my years of doing analysis, this easily chart would qualify as a classic bear flag below resistance and the 50-day EMA. Of course technical analysis doesn't work all the time, but this one has been lagging long enough to suggest something isn't quite right here. Is it the regional banks that are holding it back?
The I-fund (EFA) followed up Wednesday's breakout with yet another gap up opening. This is quite intriguing, but oh those open gaps below just waiting to get filled -- I think?
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. Have a great weekend!
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.
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The inflation picture continues to improve, and the rally might suggest that investors are cheering a possible pause in rate hikes from the Fed, but perhaps surprisingly, there wasn't as much of a change in the target rate probability for the next FOMC meeting as we might expect. As a matter of fact, the chances of a 0.25% interest rate higher is still higher than it was a week ago. There was just a minor 1.4% decline day over day of a hike.
I've been saying this for a while now that the price action is suggesting something good is coming around the corner; something most of us are not seeing. Unfortunately, a potential recession is also coming, and we all see that. So why are stocks rallying?
Part of me says, this is ridiculous and this is a great opportunity, not only to raise cash if you own stocks, but also to bet against stocks, which of course is very risky, but you'd make money on the way down (outside of the TSP funds.)
Another part of me sees the action and realizes that I have no idea what is coming around that corner, but apparently it is good, and I should probably respect that.
The banks will start reporting earnings this morning. There are two lines of thinking when it comes to what to expect.
One is that the banks have taken a big hit this year and the financial and bank stocks are trading near their lows, so the negatives are priced in and any upside surprises in earnings might trigger a big rally. Options traders are actually betting more on the bullish side of the banks, and that could be a sign of an upcoming rally.
On the other hand, while banks were pricing in the individual bank failures and lower yields which hurt profits, have they priced in the potential for a recession yet? Most companies like to put a positive spin on their reports so it will be interesting to hear these banks' forecasts and guidance for the next few quarters, when many are expecting to see the evidence of the recession.
The bond market never fails to baffle me. While inflation concerns are waning after that PPI report, and chances of a recession are increasing, you would expect yields to fall, but the 10-year Treasury yield closed at its highest level in two week yesterday.
The dollar was down again, and has been in a free fall since testing and failing at the 50-day EMA on Monday. This again gave the I-fund a boost on the day.
I want to apologize to my TSP Talk Plus subscribers who get our ETF text alerts. What a disaster yesterday as I had a typo in symbol in the first alert. Then, when sending a correction, I was confusing two ETFs, which are very similar, but different by one letter. I was considering both and looking at both charts all morning trying to determine which to use. Both are "betting" on the same thing but one was a leveraged ETF, and one was not. So let me just say I am sorry for that confusion and melt down yesterday.
We will get the monthly retail sales report this morning. Boeing was down sharply after hours yesterday and that could weigh on the Dow today.
The S&P 500 (C-fund) got a PPI boost to a higher high, and the highest close since mid-February. It's now within about 50 points of the February highs. What makes this most interesting is...
... the DWCPF (S-fund) looks completely different. In my years of doing analysis, this easily chart would qualify as a classic bear flag below resistance and the 50-day EMA. Of course technical analysis doesn't work all the time, but this one has been lagging long enough to suggest something isn't quite right here. Is it the regional banks that are holding it back?
The I-fund (EFA) followed up Wednesday's breakout with yet another gap up opening. This is quite intriguing, but oh those open gaps below just waiting to get filled -- I think?
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. Have a great weekend!
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.
