Mondays continue to be movers and yesterday it was the bears who did most of the moving. Another rally in bond yields has the market on edge as we head into today's important CPI report and then earnings season. The Dow lost 413-points and it was fairly red across the board, although the recently beaten down Transports were up. Small caps were down but outperformed for a change.
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The yield on the 10-year Treasury is now the current focus as it rises relentlessly. This is something we thought could happen for the last year, and while they have been rallying all of this year, I'm not sure why it took this long for them to finally breakout when we all knew that the Covid stimulus and overly dovish Fed was going to eventually lead to this.
I lost money in 2021 trading yield ETFs like TMV and TBT, which go up when yields go up (bond prices down), and you can see that yields did not bottom and start going up until later in 2021, and I didn't have the patience to hold onto those losing positions (at the time) that long as they fell for months. Normally us amateur traders are late to the show. I was about six months to a year too early, with no patience, and that's how you lose money.
The point is, we have been talking about rising rates and yields for a long time now, but only now is it accelerating. That's sort of unusual. The stocks market is generally considered to be priced 6-months ahead of the data / news. In other words, what it is doing today in the stock markets is a vision of what the bigger money expects from the economy and earnings next fall.
The crypto currencies have given up a lot of their recent rally and the losses yesterday (bitcoin was down about $2600) may have been enough to shake out traders and even giving the stock market more of a "risk off" sentiment. Gold and silver were up nicely on the day so bitcoin is certainly not behaving like a hedge on inflation like gold historically does.
We get the CPI (consumer price index) this morning, and the PPI (producer price index) tomorrow and this could be the pivot point for the market with these being the last before the Fed's May FOMC meeting. A high inflationary number could kick the indices down toward the 2022 lows, but a more benign report could turn this ship around.
The S&P 500 (C-fund) fell through that 50-day EMA fairly easily yesterday and as you can see, the 200-day EMA may the line in the sand between a bounce and another test of the lows. There was some consolidating below the 200-day EMA in January and I suppose that is possible here as part of a larger inverted head and shoulders pattern than I had drew the other day.
DWCPF (S-fund / small caps) held up a little better and the Russell 2000 was actually positive several times during the day before the late selling in the large caps took it down in sympathy. Relative strength in small caps tends to be a bullish sign, but this was only one day.
The EFA (I-fund) was down sharply with the U.S. market, but not quite as steeply as the large cap techs that dragged the S&P and Nasdaq down. This chart also has a large inverted head and shoulders pattern forming, although a little on the lopsided side. The open gap near 70 is always a potential target and a possible bottom of the right shoulder if it gets that far.
BND (Bonds / F-fund) -- due for a bounce, but it doesn't seem worth the try in this environment.
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
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Thanks for reading. We'll see you back here tomorrow.
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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It wasn't long ago that the stock market was rising and falling inversely to the price of oil, but so far investors are not too excited that oil has pulled back sharply off the highs. The damage is still being done of course with gasoline at their highs while the price oil is now 27% off the March highs.
Once again the internal numbers weren't quite as bad as the indices may have suggested because most of the weakness was focused on large tech with stocks like Microsoft alone accounting for nearly 80 of the 413 points lost in the Dow. The share volume ratio in the Nasdaq may show this best with 45% of the trading volume being on the advancing side, which is fairly high for a day where the Nasdaq lost 2.2%. The new lows are getting high again and of course it is because the indices themselves are moving down toward the earlier 2022 lows.
The yield on the 10-year Treasury is now the current focus as it rises relentlessly. This is something we thought could happen for the last year, and while they have been rallying all of this year, I'm not sure why it took this long for them to finally breakout when we all knew that the Covid stimulus and overly dovish Fed was going to eventually lead to this.
I lost money in 2021 trading yield ETFs like TMV and TBT, which go up when yields go up (bond prices down), and you can see that yields did not bottom and start going up until later in 2021, and I didn't have the patience to hold onto those losing positions (at the time) that long as they fell for months. Normally us amateur traders are late to the show. I was about six months to a year too early, with no patience, and that's how you lose money.
The point is, we have been talking about rising rates and yields for a long time now, but only now is it accelerating. That's sort of unusual. The stocks market is generally considered to be priced 6-months ahead of the data / news. In other words, what it is doing today in the stock markets is a vision of what the bigger money expects from the economy and earnings next fall.
The crypto currencies have given up a lot of their recent rally and the losses yesterday (bitcoin was down about $2600) may have been enough to shake out traders and even giving the stock market more of a "risk off" sentiment. Gold and silver were up nicely on the day so bitcoin is certainly not behaving like a hedge on inflation like gold historically does.
We get the CPI (consumer price index) this morning, and the PPI (producer price index) tomorrow and this could be the pivot point for the market with these being the last before the Fed's May FOMC meeting. A high inflationary number could kick the indices down toward the 2022 lows, but a more benign report could turn this ship around.
The S&P 500 (C-fund) fell through that 50-day EMA fairly easily yesterday and as you can see, the 200-day EMA may the line in the sand between a bounce and another test of the lows. There was some consolidating below the 200-day EMA in January and I suppose that is possible here as part of a larger inverted head and shoulders pattern than I had drew the other day.
DWCPF (S-fund / small caps) held up a little better and the Russell 2000 was actually positive several times during the day before the late selling in the large caps took it down in sympathy. Relative strength in small caps tends to be a bullish sign, but this was only one day.
The EFA (I-fund) was down sharply with the U.S. market, but not quite as steeply as the large cap techs that dragged the S&P and Nasdaq down. This chart also has a large inverted head and shoulders pattern forming, although a little on the lopsided side. The open gap near 70 is always a potential target and a possible bottom of the right shoulder if it gets that far.
BND (Bonds / F-fund) -- due for a bounce, but it doesn't seem worth the try in this environment.
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 for reading. We'll see you back here tomorrow.
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.
