Stocks bounced back on Friday and the bulls try to recapture the momentum after Thursday's potential trend changing sell off. The monthly jobs report came in strong again so yields and the dollar moved higher, but that didn't deter the dip buyers from doing their thing, but is it too late with the charts starting to show some cracks? Bonds were hit hard with the 10-year T-note yield closing at a new 2024 high.
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The jobs report came in north of 300,000 jobs, well beyond the 210K estimated. Investors were very decisive in buying this strong number despite it being a potential rate cut killer as the economy continues to remain more resilient than most expected and a rate cut could do more harm than good on the inflation front.
The 10-year Treasury Yield rebounded from the recent pullback that filled an open gap, and here it is back above the neckline of that inverted head and shoulders pattern, which suggests a yield of 4.5% could be here soon, and how will the stock market react to that?
The dollar also remains strong as it bounced back from its pullback to the 20-day moving average. One of the key reasons for its strength is the Fed's relentless reduction of their balance sheet. Reducing the balance sheet is a good thing as far as fiscal responsibility goes as it makes the stock market have to work for its gains rather than be artificially assisted by the Federal Reserve's loosening of monetary policy, but it could put pressure on stocks, and particularly the I-fund. The balance sheet declined $45 billion last week and that's $100 billion in the last three week.
The battle between buying the dip and the bears sensing technical damage to the charts, is on this week. In recent weeks and months we have had several warning signs, but the price action has been really good and momentum is as good of an indicator as any. However Thursday's action threw a wrench into the bullish technical picture, and while Friday's rally looked good - helping the S&P 500 move back above that very resilient 15-day moving average, it is below the rising support line and, as we talked about on Friday, the negative reversal candlestick could be a red flag.
Here's that chart again of last July's market peak which started with a similar negative reversal day. That sent a shock wave through the technical analysis world, and even though stocks moved higher during the two days after that July negative reversal, it did indeed indicate a change was coming.
As you will see in the TSP Fund charts down below, the S-fund chart is clinging to support but here we see the Nasdaq 100 Index, which is ruled by the Magnificent 7 stocks or whatever they are calling the top tech stocks these days, showing some wear and tear as it trades below its long term support line for the first time since October. Friday's rally pushed it above that key 30-day EMA and that could save it, but watch the action early this week to see if the bears take advantage of this breakdown below the red line.
The start of earnings season is still about a week away, with big tech staring 2 - 3 weeks from now. This week we'll get the CPI and the PPI reports so let's see if Minneapolis Fed President Neel Kashkari's comments about no rate cuts remains justified.
The S&P 500 (C-fund) had quite the week last week, ending on a positive note with the 1.1% gain on Friday, but down almost 1% for the week. It managed to close back above that resilient 15-day EMA, but it did break below the 2024 rising support line, so that's a warning sign. Another warning sign that has gone ignored for weeks by the rallying index is that PMO indicator which has been drifting lower since early February, and actually since December if this chart went back further. Now that support is broken, will this finally matter?
DWCPF (S-fund) was the biggest loser last week with a loss over 2%, but ironically it is holding up a little better as far as the chart goes as it closed above its rising 2024 support line.
The EFA (I-fund) fell down to, and held at, the 50-day EMA on Friday and maybe it missed an opportunity to fill that open gap from early March before moving higher. Now we have to keep drawing in that open gap as a possible pullback target. We have a flat top looking formation, but that could also be a bull flag forming if support can continue to hold. If the dollar makes new highs this week, I don't like the chances of the EFA holding.
BND (Bonds / F-fund) took a big hit on Friday and it closed below key support again, which tells me yields are going to go higher, and this is going to fall further.
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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The jobs report came in north of 300,000 jobs, well beyond the 210K estimated. Investors were very decisive in buying this strong number despite it being a potential rate cut killer as the economy continues to remain more resilient than most expected and a rate cut could do more harm than good on the inflation front.
The 10-year Treasury Yield rebounded from the recent pullback that filled an open gap, and here it is back above the neckline of that inverted head and shoulders pattern, which suggests a yield of 4.5% could be here soon, and how will the stock market react to that?
The dollar also remains strong as it bounced back from its pullback to the 20-day moving average. One of the key reasons for its strength is the Fed's relentless reduction of their balance sheet. Reducing the balance sheet is a good thing as far as fiscal responsibility goes as it makes the stock market have to work for its gains rather than be artificially assisted by the Federal Reserve's loosening of monetary policy, but it could put pressure on stocks, and particularly the I-fund. The balance sheet declined $45 billion last week and that's $100 billion in the last three week.
The battle between buying the dip and the bears sensing technical damage to the charts, is on this week. In recent weeks and months we have had several warning signs, but the price action has been really good and momentum is as good of an indicator as any. However Thursday's action threw a wrench into the bullish technical picture, and while Friday's rally looked good - helping the S&P 500 move back above that very resilient 15-day moving average, it is below the rising support line and, as we talked about on Friday, the negative reversal candlestick could be a red flag.
Here's that chart again of last July's market peak which started with a similar negative reversal day. That sent a shock wave through the technical analysis world, and even though stocks moved higher during the two days after that July negative reversal, it did indeed indicate a change was coming.
As you will see in the TSP Fund charts down below, the S-fund chart is clinging to support but here we see the Nasdaq 100 Index, which is ruled by the Magnificent 7 stocks or whatever they are calling the top tech stocks these days, showing some wear and tear as it trades below its long term support line for the first time since October. Friday's rally pushed it above that key 30-day EMA and that could save it, but watch the action early this week to see if the bears take advantage of this breakdown below the red line.
The start of earnings season is still about a week away, with big tech staring 2 - 3 weeks from now. This week we'll get the CPI and the PPI reports so let's see if Minneapolis Fed President Neel Kashkari's comments about no rate cuts remains justified.
The S&P 500 (C-fund) had quite the week last week, ending on a positive note with the 1.1% gain on Friday, but down almost 1% for the week. It managed to close back above that resilient 15-day EMA, but it did break below the 2024 rising support line, so that's a warning sign. Another warning sign that has gone ignored for weeks by the rallying index is that PMO indicator which has been drifting lower since early February, and actually since December if this chart went back further. Now that support is broken, will this finally matter?
DWCPF (S-fund) was the biggest loser last week with a loss over 2%, but ironically it is holding up a little better as far as the chart goes as it closed above its rising 2024 support line.
The EFA (I-fund) fell down to, and held at, the 50-day EMA on Friday and maybe it missed an opportunity to fill that open gap from early March before moving higher. Now we have to keep drawing in that open gap as a possible pullback target. We have a flat top looking formation, but that could also be a bull flag forming if support can continue to hold. If the dollar makes new highs this week, I don't like the chances of the EFA holding.
BND (Bonds / F-fund) took a big hit on Friday and it closed below key support again, which tells me yields are going to go higher, and this is going to fall further.
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.
