Stocks bounced back yesterday, a day after Tuesday's CPI driven sell off that had opened up some overhead gaps on the charts. Some of those gaps remain open after the rebound, while the S-fund did complete the task and fill its gap. The Dow lagged with its 152-point gain, but we saw near 1% or more gains in most of the broader indices, and a late push higher into the close had the S&P 500 recapturing the 5000 level. Bond yields and the dollar retreated after Tuesday's big gains.
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It was a relief rally but we don't know for sure yet if this was anything more than some backing and filling of the large open gaps created by the CPI sell off.
This top chart of the S&P 500 goes back 4-months so the open gap from Tuesday looks small, and yesterday's rally left just a sliver still open, just above 5000. Finding support at the 20-day EMA on Tuesday and continuing to bounce off it yesterday keeps the upward trend alive, but we may not know the strength of this rebound until that gap gets filled - or doesn't. Often a filled gap is an upside the target before the chart reverses back down, so that's what we may be testing today. As noted on the chart, the S&P 500 is now 11% above its 200-day EMA, and that very extended. The subsequent charts, the S and I-funds are also extended but at least they have done some sideways consolidations in recent months, creating a healthy cup and handle formation in the case of the S-fund, and...
... an inverted head and shoulders pattern on the I-fund. The S-fund did fill its open gap from Tuesday while the C-fund and the I-fund still have a little more work on the upside to do.
Whether the tops of those open gaps hold as resistance will be the big tell of whether the upside can continue. In the case of the consolidating S and I-funds, the charts look primed for a break out but the C-fund seems overly stretched as we can see in this long term weekly chart of the S&P 500.
It possible that we get another overshoot of the trading channel, but they tend to be opportunities to go the other way.
The 10-year Treasury Yield and the dollar moved sharply higher on Tuesday and yesterday they did some digesting of those moves, and that is crucial to the direction of the stock market. Higher yields and a stronger dollar in this environment will almost certainly put pressure on the stock market and we may need to see these hit a wall and break their current positive trends to keep the rally going in stocks.
Here's another reminder of the stark difference in the two halves of the February seasonality chart. The weaker latter half would start on Monday. Seasonality is not usually a primary indicator unless the data is very compelling, and I'll let you be the judge of this data.
Chart provided courtesy of www.sentimentrader.com
The S&P 500 (C-fund) is trying to fill in Tuesday's open gap after bouncing nicely off the 20-day EMA. After failing to hold above the upper end of that channel, it seems to want to make another push back to it, but as I mentioned, the top of that gap could bring in more sellers once people get their money back from Tuesday's losses. A push to the bottom of the channel may be what this chart needs to gain some strength to make another attempt at new high.
BND (bonds / F-fund) bounced off the bottom of its bullish looking flag, which is growing much longer than a bull flag normally would. Still, the angle of the decline in this current channel, compared to the angle of incline during the late 2023 rally, suggests that this is a benign downtrend, and a push to the top of the flag looks very possible. That would mean more short-term weakness in yields in the coming days, but the PPI report tomorrow could make or break that theory.
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 relief rally but we don't know for sure yet if this was anything more than some backing and filling of the large open gaps created by the CPI sell off.
This top chart of the S&P 500 goes back 4-months so the open gap from Tuesday looks small, and yesterday's rally left just a sliver still open, just above 5000. Finding support at the 20-day EMA on Tuesday and continuing to bounce off it yesterday keeps the upward trend alive, but we may not know the strength of this rebound until that gap gets filled - or doesn't. Often a filled gap is an upside the target before the chart reverses back down, so that's what we may be testing today. As noted on the chart, the S&P 500 is now 11% above its 200-day EMA, and that very extended. The subsequent charts, the S and I-funds are also extended but at least they have done some sideways consolidations in recent months, creating a healthy cup and handle formation in the case of the S-fund, and...
... an inverted head and shoulders pattern on the I-fund. The S-fund did fill its open gap from Tuesday while the C-fund and the I-fund still have a little more work on the upside to do.
Whether the tops of those open gaps hold as resistance will be the big tell of whether the upside can continue. In the case of the consolidating S and I-funds, the charts look primed for a break out but the C-fund seems overly stretched as we can see in this long term weekly chart of the S&P 500.
It possible that we get another overshoot of the trading channel, but they tend to be opportunities to go the other way.
The 10-year Treasury Yield and the dollar moved sharply higher on Tuesday and yesterday they did some digesting of those moves, and that is crucial to the direction of the stock market. Higher yields and a stronger dollar in this environment will almost certainly put pressure on the stock market and we may need to see these hit a wall and break their current positive trends to keep the rally going in stocks.
Here's another reminder of the stark difference in the two halves of the February seasonality chart. The weaker latter half would start on Monday. Seasonality is not usually a primary indicator unless the data is very compelling, and I'll let you be the judge of this data.
Chart provided courtesy of www.sentimentrader.com
The S&P 500 (C-fund) is trying to fill in Tuesday's open gap after bouncing nicely off the 20-day EMA. After failing to hold above the upper end of that channel, it seems to want to make another push back to it, but as I mentioned, the top of that gap could bring in more sellers once people get their money back from Tuesday's losses. A push to the bottom of the channel may be what this chart needs to gain some strength to make another attempt at new high.
BND (bonds / F-fund) bounced off the bottom of its bullish looking flag, which is growing much longer than a bull flag normally would. Still, the angle of the decline in this current channel, compared to the angle of incline during the late 2023 rally, suggests that this is a benign downtrend, and a push to the top of the flag looks very possible. That would mean more short-term weakness in yields in the coming days, but the PPI report tomorrow could make or break that theory.
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.
