After a gap up last Monday, we finally saw some gains hold into the latter part of the week, and what a week it was. It was capped off by another big rally on Friday as the Dow gained 222-points on the day, and the small caps exploded for a second straight 2% plus gain to end the week. Yields and the dollar were falling in response to the weaker than expected jobs report, and also what is being interpreted as a less hawkish Fed as inflation falls and the economy shows modest signs of weakening.
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It was a great week for stocks as we saw gains in the TSP stock funds of between 5.5% and 7.4%, and even the F-fund picked up 2% - a big move for the bond fund. It was a good start for the new month as well, but we had a similar rally that turned out to be a fake out in early October.
With the Fed shifting to a less hawkish stance on interest rates of late, can we expect stocks to continue to recover even as we start to witness the cracks in the economy in the process? Yes, we're in a bad news is good news environment again, although when that happens, at some point investors ask, "how bad is it, really?"
The October jobs report came in softer than expected - about 20,000 jobs below estimates, and the unemployment rate ticked up to 3.9%. These are not bad numbers, but they missed estimates and the trend is getting weaker. That's a good sign for keeping the Fed and their interest rates hikes away, but how good is it for the economy?
As the economic data comes in on the weaker side, not overtly weak, but declining, are rates / yields going to continue to go up, stabilize, or go back down? The 10-year Treasury Yield was down sharply last week and even the 50-day EMA, which had been holding for months, gave way on Friday, although it is still in the neighborhood.
The dollar was down as well, and it too is testing its 50-day EMA after filling in an open gap from September on Friday. There are more open gaps below, but two above as well the 50-day EMA, which may be the path of least resistance if that average holds as support.
It's not a direct correlation, but the dollar may be tough to bring down if the Fed continues to reduce the balance sheet. A strong dollar isn't bad for the US per se, but it can be a headwind to prices unless the argument for higher stock prices is overwhelmingly compelling.
Last week the Fed balance sheet was reduced by another $41 billion. The 3-week move since Oct 11 is down $85 billion. It's a good thing to see the balance sheet fall as far as getting the Fed out of the free markets, but the decrease in liquidity might be, theoretically, another headwind for the stock market.
Chart source: www.federalreserve.gov/
Some of the market leaders are at an interesting juncture after last week's big relief rally. The small caps of the Russell 2000 (IWM) bounced off the prior lows again but now they they are facing some old broken support than could now act as resistance in the 175 area. The 50-day EMA is near 174, and the 200-EMA is up near 180. That's a lot of congestion to overcome after a near 8% move off those recent lows.
How about the economically sensitive Transportation Index? There's still a little room to run before resistance comes into play, but we are about to see a head on collision between rapidly rising price and the precipitous decline in resistance.
It is a classic dilemma between the possible end of raising yields and interest rates vs. the noticeable, and not so noticeable, headwind for the economy. Any recession could be well off into 2024 and the question is can stocks rally during this bullish seasonal period knowing what potentially lies ahead if we do get a recession next year?
The charts are pretty clear that the stock market is at a key pivot point. We've had a big rally up to the top of descending trading channels. The new momentum on the upside is strong and could be tough to tame, but we've seen the channel hold since the peak at the end of July.
Last week the S&P 500 (C-fund) rallied above the bottom of the trading channel, then moved above the 200-day EMA (blue), the 20-day EMA (green), and then the 50-day EMA (purple), and it is now flirting with the top of the large channel. In accomplishing that impressive feat, it opened up some large gaps below that may need to get filled. The PMO indicator crossover is again indicating a possible overbought condition, but in general, if the crossover can hold, unlike prior crossovers, the bulls may have something. That just wasn't the case in the prior two.
The weekly S&P 500 (C-fund) fought and closed back above the rising red support line as well as the 50-week moving average. It's a good development but a move back down to 4300 or the high 4200's, which would fill at least one gap on the daily chart, is still possible while maintaining support.
The DWCPF (S-fund) is in a little tougher position technically as it remains below its 200-day EMA. It did close above the 50-day EMA but this would have to be a major bullish reversal for this to continue higher without filling at least one of those open gaps below. That would be a "gap and go" and they are impressive, although rare.
The EFA (I-fund) is in the same situation but unlike the small caps it managed to climb back above its 200-day EMA. But oh, those gaps. Plus the dollar is at support right now and, if it holds, could be a headwind for the EFA and the I-fund in the short-term.
BND (bonds / F-fund) was the instigator of the rally in stocks. It remains deep below its 200-day EMA and it also remains in the larger descending trading channel (red) although the shorter-term blue channel has been broken. Gaps are in play here as well.
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.
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It was a great week for stocks as we saw gains in the TSP stock funds of between 5.5% and 7.4%, and even the F-fund picked up 2% - a big move for the bond fund. It was a good start for the new month as well, but we had a similar rally that turned out to be a fake out in early October.
With the Fed shifting to a less hawkish stance on interest rates of late, can we expect stocks to continue to recover even as we start to witness the cracks in the economy in the process? Yes, we're in a bad news is good news environment again, although when that happens, at some point investors ask, "how bad is it, really?"
The October jobs report came in softer than expected - about 20,000 jobs below estimates, and the unemployment rate ticked up to 3.9%. These are not bad numbers, but they missed estimates and the trend is getting weaker. That's a good sign for keeping the Fed and their interest rates hikes away, but how good is it for the economy?
As the economic data comes in on the weaker side, not overtly weak, but declining, are rates / yields going to continue to go up, stabilize, or go back down? The 10-year Treasury Yield was down sharply last week and even the 50-day EMA, which had been holding for months, gave way on Friday, although it is still in the neighborhood.
The dollar was down as well, and it too is testing its 50-day EMA after filling in an open gap from September on Friday. There are more open gaps below, but two above as well the 50-day EMA, which may be the path of least resistance if that average holds as support.
It's not a direct correlation, but the dollar may be tough to bring down if the Fed continues to reduce the balance sheet. A strong dollar isn't bad for the US per se, but it can be a headwind to prices unless the argument for higher stock prices is overwhelmingly compelling.
Last week the Fed balance sheet was reduced by another $41 billion. The 3-week move since Oct 11 is down $85 billion. It's a good thing to see the balance sheet fall as far as getting the Fed out of the free markets, but the decrease in liquidity might be, theoretically, another headwind for the stock market.
Chart source: www.federalreserve.gov/
Some of the market leaders are at an interesting juncture after last week's big relief rally. The small caps of the Russell 2000 (IWM) bounced off the prior lows again but now they they are facing some old broken support than could now act as resistance in the 175 area. The 50-day EMA is near 174, and the 200-EMA is up near 180. That's a lot of congestion to overcome after a near 8% move off those recent lows.
How about the economically sensitive Transportation Index? There's still a little room to run before resistance comes into play, but we are about to see a head on collision between rapidly rising price and the precipitous decline in resistance.
It is a classic dilemma between the possible end of raising yields and interest rates vs. the noticeable, and not so noticeable, headwind for the economy. Any recession could be well off into 2024 and the question is can stocks rally during this bullish seasonal period knowing what potentially lies ahead if we do get a recession next year?
The charts are pretty clear that the stock market is at a key pivot point. We've had a big rally up to the top of descending trading channels. The new momentum on the upside is strong and could be tough to tame, but we've seen the channel hold since the peak at the end of July.
Last week the S&P 500 (C-fund) rallied above the bottom of the trading channel, then moved above the 200-day EMA (blue), the 20-day EMA (green), and then the 50-day EMA (purple), and it is now flirting with the top of the large channel. In accomplishing that impressive feat, it opened up some large gaps below that may need to get filled. The PMO indicator crossover is again indicating a possible overbought condition, but in general, if the crossover can hold, unlike prior crossovers, the bulls may have something. That just wasn't the case in the prior two.
The weekly S&P 500 (C-fund) fought and closed back above the rising red support line as well as the 50-week moving average. It's a good development but a move back down to 4300 or the high 4200's, which would fill at least one gap on the daily chart, is still possible while maintaining support.
The DWCPF (S-fund) is in a little tougher position technically as it remains below its 200-day EMA. It did close above the 50-day EMA but this would have to be a major bullish reversal for this to continue higher without filling at least one of those open gaps below. That would be a "gap and go" and they are impressive, although rare.
The EFA (I-fund) is in the same situation but unlike the small caps it managed to climb back above its 200-day EMA. But oh, those gaps. Plus the dollar is at support right now and, if it holds, could be a headwind for the EFA and the I-fund in the short-term.
BND (bonds / F-fund) was the instigator of the rally in stocks. It remains deep below its 200-day EMA and it also remains in the larger descending trading channel (red) although the shorter-term blue channel has been broken. Gaps are in play here as well.
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.
