Stocks were mixed on Friday, trading lower for most of the day but they closed near their highs of the day giving the C-fund a nice gain, and shaving some of the morning losses off the S and I-funds. The Dow was up a healthy 169-points with 25 of its 30 stocks closing higher. Bonds continue to slide as yields push higher on the Fed's relentless hawkish comments.
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Caution! Bond Talk ahead... :^)
The bond market had been rallying as yields slid lower and lower while the Fed was raising interest rates. I, and many others, were wondering who was right? Was the Fed getting too aggressive with rates while the bond market was pushing yields lower, or was the Fed right and the bond market the one that was off track? The bond market is one of the biggest, if not the biggest, markets in the world. Yes, it is bigger than the stock market, so when the bond market is telling us something, we should probably pay attention. The problem is, that made me assume that the Fed was wrong, but lately, I'm not so sure.
The Fed tends to follow the yield of the 2-year Treasury Note and just a week or so ago it looked like the 2-year yield was about to break to new lows below 4%. Instead it has ramped higher. It may be near the top of a descending channel, but it is back to 4.5% and the Fed has been looking at 5% or higher for its Fund Rate. If that parallel line resistance holds and the yield rolls back over, we could have a different development and the pullback in stocks could be over, but if yields continue higher, the stock market could be in some trouble.
The 10-year Yield has also been flying high and technically, it looks like a test of the head of a head and shoulders pattern. If that's the case it may be targeting that open gap above 3.8%. There is also a small piece of an open gap down by 3.55% and I suppose both could get filled, and what's coming up that could do something like that? How about the CPI report tomorrow? That's become the hot economic report that moves the market.
Many of the indicators that I follow are suggesting the upside may have been over stretched, but the charts themselves actually look very good for now. The weekly chart has now closed above the long-term descending resistance line for a third straight week. It did close down last week but it remains above key old resistance, and that may have become support.
It's possible that the open gap above 4200 is the bear market rally target. Gaps are very rare on the weekly charts, and they do tend to get filled eventually so it would be a little surprising if the S&P came all this way just to fall short of filling that gap.
The Transports have wobbled with the rest of the market, but it had an amazing 3-week run up starting at the end of January, and right now I'd say it is just backing and filling those breakout candles. The test would come if it fell back to the neckline of that large bullish looking inverted head and shoulders pattern near 14,750.
There are a lot of geopolitical events happening to spoil any market rally, but it wouldn't be the first time that we saw stocks climb the wall of worry. The next obstacle will be tomorrow's CPI report which should spark some movement so today would be the day to adjust your accounts if you have feelings either way about that inflationary data.
The S&P 500 (C-fund) failed to make a higher high last week as it pulled back to test some support areas, one being the 20-day EMA which often holds in a bull market, so this will be a good test this week. Below the 20-day EMA is that red rising short-term support line, then the 200 and 50-day EMAs, so there is a lot of support. If these fail it will tell us a lot, but the charts look pretty good. Too bad many of the indicators aren't in agreement with the charts.
DWCPF (S-fund) is down about 5% off its recent highs, and that's a typical bull market dip, but the question we all want to know is whether we are in a bull market, or is this the tail end of another bear market rally destined to fail? Again, tons of support here so the tests are here right now.
The EFA (I-fund) broke down last week from its long term rising support line but it is still hanging around the old highs so it's tough to say this is bearish - but it was a warnings sign to keep an eye on. A long consolidation isn't a bad thing.
BND (Bonds / F-fund) also broke down with yields getting lofty again. This chart has that large open gap below 70 and the breakdown brings that into the picture as a possibility, but it's such a long way down so the next test will be if it makes a lower low below that late December low.
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. 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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Caution! Bond Talk ahead... :^)
The bond market had been rallying as yields slid lower and lower while the Fed was raising interest rates. I, and many others, were wondering who was right? Was the Fed getting too aggressive with rates while the bond market was pushing yields lower, or was the Fed right and the bond market the one that was off track? The bond market is one of the biggest, if not the biggest, markets in the world. Yes, it is bigger than the stock market, so when the bond market is telling us something, we should probably pay attention. The problem is, that made me assume that the Fed was wrong, but lately, I'm not so sure.
The Fed tends to follow the yield of the 2-year Treasury Note and just a week or so ago it looked like the 2-year yield was about to break to new lows below 4%. Instead it has ramped higher. It may be near the top of a descending channel, but it is back to 4.5% and the Fed has been looking at 5% or higher for its Fund Rate. If that parallel line resistance holds and the yield rolls back over, we could have a different development and the pullback in stocks could be over, but if yields continue higher, the stock market could be in some trouble.
The 10-year Yield has also been flying high and technically, it looks like a test of the head of a head and shoulders pattern. If that's the case it may be targeting that open gap above 3.8%. There is also a small piece of an open gap down by 3.55% and I suppose both could get filled, and what's coming up that could do something like that? How about the CPI report tomorrow? That's become the hot economic report that moves the market.
Many of the indicators that I follow are suggesting the upside may have been over stretched, but the charts themselves actually look very good for now. The weekly chart has now closed above the long-term descending resistance line for a third straight week. It did close down last week but it remains above key old resistance, and that may have become support.
It's possible that the open gap above 4200 is the bear market rally target. Gaps are very rare on the weekly charts, and they do tend to get filled eventually so it would be a little surprising if the S&P came all this way just to fall short of filling that gap.
The Transports have wobbled with the rest of the market, but it had an amazing 3-week run up starting at the end of January, and right now I'd say it is just backing and filling those breakout candles. The test would come if it fell back to the neckline of that large bullish looking inverted head and shoulders pattern near 14,750.
There are a lot of geopolitical events happening to spoil any market rally, but it wouldn't be the first time that we saw stocks climb the wall of worry. The next obstacle will be tomorrow's CPI report which should spark some movement so today would be the day to adjust your accounts if you have feelings either way about that inflationary data.
The S&P 500 (C-fund) failed to make a higher high last week as it pulled back to test some support areas, one being the 20-day EMA which often holds in a bull market, so this will be a good test this week. Below the 20-day EMA is that red rising short-term support line, then the 200 and 50-day EMAs, so there is a lot of support. If these fail it will tell us a lot, but the charts look pretty good. Too bad many of the indicators aren't in agreement with the charts.
DWCPF (S-fund) is down about 5% off its recent highs, and that's a typical bull market dip, but the question we all want to know is whether we are in a bull market, or is this the tail end of another bear market rally destined to fail? Again, tons of support here so the tests are here right now.
The EFA (I-fund) broke down last week from its long term rising support line but it is still hanging around the old highs so it's tough to say this is bearish - but it was a warnings sign to keep an eye on. A long consolidation isn't a bad thing.
BND (Bonds / F-fund) also broke down with yields getting lofty again. This chart has that large open gap below 70 and the breakdown brings that into the picture as a possibility, but it's such a long way down so the next test will be if it makes a lower low below that late December low.
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. 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.
