The Fed officially announced their tapering of the bond buying program with $15 billion monthly increments... and the stock market rejoices? Sounds bearish, but the market has been bracing for this for months. It finally happened, and the bullish response had more to do with the Fed's muted opinion of raising interest rates, where they basically said... not yet. The Dow, which was down sharply in early trading, closed up 105-points. Small caps and the Nasdaq led, bonds were down, the dollar rallied, and commodities, including oil, sold off.
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The dollar was up earlier in the day, but the tapering with no interest rate hike on the horizon weakened it by the close. It remains in that bull flag and has some room to move lower in the flag, but bull flags tend to break to the upside, so I wouldn't be surprised to get some news here that firms up the dollar again. I have no idea what that might be, but that's what the chart suggests.
It's hard not to be bullish given the situation that the Fed is in, but stocks are getting extended again, and that means if you are in stocks, the risks get higher.
The S&P 500 (C-fund) was hit by the Fed as the chart broke above the already extended channel. It is also very extended above the key moving averages (450-points above the 200-day EMA) but momentum is obviously still on the bulls side, although it would not be a surprise to see some post Fed sell the news profit taking, in my opinion.
The DWCPF (S-fund) had another big day. Not quite the nearly 2% gain of the Russell 2000 small caps index, but another 1.2% gain added to an already over-heated S-fund chart. You can't see it here, but our TSP Talk Plus subscribers can see the other DWCPF charts which show just how extended this really is. There's some resistance at yesterday's highs, but in recent weeks, resistance has been easily taken out. We'll see.
The EFA (I-fund) had a big day with the help of the selling in the dollar yesterday. There's a little room above before it tests its previous highs.
BND (Bonds / F-fund) again tested the 50-day EMA, and again it failed. It does seem to be trying to form a bottom but that resistance has been tough. The Fed just told us that the economy is not strong enough to raise rates so lower rates would mean higher bond prices. The chart just hasn't made up its mind yet.
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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With the tapering of the bond market and rates staying low, the Fed basically told everyone that the natural market is not in charge, the Fed is. They are going to call the shots, not supply and demand, not the economic strength and weakness, but the Fed. Investors said, I'm OK with that, and stocks took off.
Now, we have to say that the macro outlook looks good with the Fed keeping rates low, suggesting they are not concerned about inflation either. The green light for stocks is on, but it is only as bright as the energy behind the move, and the question is now is if the market surprises everyone with a sell the news reaction, since clearly investors have been buying this Fed rumor for several weeks leading up to this week's FOMC meeting.
The yield on the 10-year Treasury broke below a bear flag earlier in the week. Now after another push higher post-Fed yesterday, we may be looking at a head and shoulders pattern. H&S patterns are generally bearish, but when they come in an uptrend like it is in now, it can sometimes be a continuation pattern, so I'm not picking a direction here yet. A breakdown below the bottom of the H&S would tell us that is not a continuation pattern, where as a move higher from here, would indicate that. With the Fed standing back on rates, it wouldn't be a surprise to see them come down, and bonds (F fund) go up. I'm not predicting that. It would just be a surprise since most of us have thought yields should be rising with an improving economy.
Now, we have to say that the macro outlook looks good with the Fed keeping rates low, suggesting they are not concerned about inflation either. The green light for stocks is on, but it is only as bright as the energy behind the move, and the question is now is if the market surprises everyone with a sell the news reaction, since clearly investors have been buying this Fed rumor for several weeks leading up to this week's FOMC meeting.
The yield on the 10-year Treasury broke below a bear flag earlier in the week. Now after another push higher post-Fed yesterday, we may be looking at a head and shoulders pattern. H&S patterns are generally bearish, but when they come in an uptrend like it is in now, it can sometimes be a continuation pattern, so I'm not picking a direction here yet. A breakdown below the bottom of the H&S would tell us that is not a continuation pattern, where as a move higher from here, would indicate that. With the Fed standing back on rates, it wouldn't be a surprise to see them come down, and bonds (F fund) go up. I'm not predicting that. It would just be a surprise since most of us have thought yields should be rising with an improving economy.
The dollar was up earlier in the day, but the tapering with no interest rate hike on the horizon weakened it by the close. It remains in that bull flag and has some room to move lower in the flag, but bull flags tend to break to the upside, so I wouldn't be surprised to get some news here that firms up the dollar again. I have no idea what that might be, but that's what the chart suggests.
It's hard not to be bullish given the situation that the Fed is in, but stocks are getting extended again, and that means if you are in stocks, the risks get higher.
The S&P 500 (C-fund) was hit by the Fed as the chart broke above the already extended channel. It is also very extended above the key moving averages (450-points above the 200-day EMA) but momentum is obviously still on the bulls side, although it would not be a surprise to see some post Fed sell the news profit taking, in my opinion.
The DWCPF (S-fund) had another big day. Not quite the nearly 2% gain of the Russell 2000 small caps index, but another 1.2% gain added to an already over-heated S-fund chart. You can't see it here, but our TSP Talk Plus subscribers can see the other DWCPF charts which show just how extended this really is. There's some resistance at yesterday's highs, but in recent weeks, resistance has been easily taken out. We'll see.
The EFA (I-fund) had a big day with the help of the selling in the dollar yesterday. There's a little room above before it tests its previous highs.
BND (Bonds / F-fund) again tested the 50-day EMA, and again it failed. It does seem to be trying to form a bottom but that resistance has been tough. The Fed just told us that the economy is not strong enough to raise rates so lower rates would mean higher bond prices. The chart just hasn't made up its mind yet.
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.
