Stocks were lower again on Tuesday after another hot inflation number from the PPI report, Producer Price Index. The Dow lost 107-points, which was well off the lows, as were several indices, but the bears won the battle yesterday. Once again the bond market, although slightly down on the day, is not reacting to inflationary data the way we might expect, but bonds are also used as a safe haven when stocks are falling, and that may have been the case in recent weeks.
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The S&P 500 (C-fund) continued to slide and yesterday it did fill the open gap and closed above that gap and basically at the low of the left shoulder of the inverted head and shoulders pattern. With the Fed on deck I'd hate to pretend I know what will happen next, but having that right shoulder hold is a good sign and we could see a move back to the neckline, which is near the recent highs. If they take the right shoulder out tomorrow, the next inverted H&S downside target would be somewhere in the middle of the head, or about 4550 - 4575. There's also an open gap near 4375 from early October that is still open and always a possibility.
The DWCPF Index (S-fund) was all over the place yesterday after opening sharply lower, rallying back to show some gains, then flopping over again to close closer to the lows, but off of them. This was a possible test of the early December lows but of course today's action could be give us another test. That green line is the 280-day average or one trading year.
The EFA (I-fund) did some cleaning up as the large open gap filled near 76.60, and the 200-day EMA held, so there was some buying interest in those key areas. The rally in the dollar didn't help, and as we talked about above, I'm watching for that breakout in the UUP to be a potential fake out and a breakdown, which would benefit the I-fund.
BND (Bonds / F-fund) were down slightly but they closed well off their lows, and above the 50 and 200-day averages for a second straight day. I'm not a fan of the F-fund in this environment, but they could remain buoyant if stocks continue to struggle.
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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The internals showed more weakness, matching the closing indices, but because of some buying during the afternoon trading, these numbers actually ended up better than the dismal earlier readings. 478 new 52-week lows on the Nasdaq is a red flag, although the last time we saw the new lows over 600, the Nasdaq started to rebound shortly afterward.
The two day FOMC meeting concludes today and we should get the policy announcement at about 2 PM ET. An interest rate hike is not expected but perhaps we'll get the announcement of when they do plan to raise rates. The market seems to be anticipating three hikes in 2022 and maybe a few more in 2023, and that is a good reason to see stocks weakening as they have been priced for perfection for some time in this 0% interest rate / easing environment. That's going to change.
The Fed was in the process of starting to lift rates a couple of years ago when the economy was heating up before COVID hit and of course the maddening spending that created has led to the inflationary issues we are seeing now. Raising rates and cutting their bond buying program is about all of the weapons the Fed has now to try to keep that in control, so again the stock market seems to be reacting. That said, the S&P 500 just made an all time closing high last Friday so some areas of the market have barely reacted while others, like the small caps, felt the heat of prospected interest rate hikes more than a month ago. The DWCPF / S-fund fell 12.5% from the highs in November to the recent lows, which was a healthy correction, but was that enough?
The yield on the 10-year Treasury was up slightly on the day but perhaps not as much as the PPI report might have suggested, but as I said, more movement into bonds because of the sell off in stocks could explain that.
The dollar broke to the upside of its pennant formation and, as we talked about yesterday, we'll watch to see if this was the fake out, as we sometimes see in these pennant formations. That doesn't always happen, but let's just say I wouldn't be surprised if we see prints below the pennant in the coming days.
The news is talking about exploding COVID numbers again, using the sports world as an example as many players are out after testing positive. On the other hand few, if any, of these players are experiencing any symptoms, so is it much ado about nothing?
The Fed will most certainly shake things up at 2 PM ET so I don't want to speculate too much. What I really want to know is if the pullback over the last 5 or 6 weeks is a reaction to investors anticipating the Fed's moves, which could set up a buy the news reaction, or if the Fed will be even more hawkish than we expect and really give the stock market something to worry about?
To make things more interesting, this Friday is a quadruple witching expiration day so the action may feel a little manipulated as strike prices on both sides of the indices get targeted. You can get big moves or completely flat action, depending where the high volume expiring options and futures contracts are concentrated.
The two day FOMC meeting concludes today and we should get the policy announcement at about 2 PM ET. An interest rate hike is not expected but perhaps we'll get the announcement of when they do plan to raise rates. The market seems to be anticipating three hikes in 2022 and maybe a few more in 2023, and that is a good reason to see stocks weakening as they have been priced for perfection for some time in this 0% interest rate / easing environment. That's going to change.
The Fed was in the process of starting to lift rates a couple of years ago when the economy was heating up before COVID hit and of course the maddening spending that created has led to the inflationary issues we are seeing now. Raising rates and cutting their bond buying program is about all of the weapons the Fed has now to try to keep that in control, so again the stock market seems to be reacting. That said, the S&P 500 just made an all time closing high last Friday so some areas of the market have barely reacted while others, like the small caps, felt the heat of prospected interest rate hikes more than a month ago. The DWCPF / S-fund fell 12.5% from the highs in November to the recent lows, which was a healthy correction, but was that enough?
The yield on the 10-year Treasury was up slightly on the day but perhaps not as much as the PPI report might have suggested, but as I said, more movement into bonds because of the sell off in stocks could explain that.
The dollar broke to the upside of its pennant formation and, as we talked about yesterday, we'll watch to see if this was the fake out, as we sometimes see in these pennant formations. That doesn't always happen, but let's just say I wouldn't be surprised if we see prints below the pennant in the coming days.
The news is talking about exploding COVID numbers again, using the sports world as an example as many players are out after testing positive. On the other hand few, if any, of these players are experiencing any symptoms, so is it much ado about nothing?
The Fed will most certainly shake things up at 2 PM ET so I don't want to speculate too much. What I really want to know is if the pullback over the last 5 or 6 weeks is a reaction to investors anticipating the Fed's moves, which could set up a buy the news reaction, or if the Fed will be even more hawkish than we expect and really give the stock market something to worry about?
To make things more interesting, this Friday is a quadruple witching expiration day so the action may feel a little manipulated as strike prices on both sides of the indices get targeted. You can get big moves or completely flat action, depending where the high volume expiring options and futures contracts are concentrated.
The S&P 500 (C-fund) continued to slide and yesterday it did fill the open gap and closed above that gap and basically at the low of the left shoulder of the inverted head and shoulders pattern. With the Fed on deck I'd hate to pretend I know what will happen next, but having that right shoulder hold is a good sign and we could see a move back to the neckline, which is near the recent highs. If they take the right shoulder out tomorrow, the next inverted H&S downside target would be somewhere in the middle of the head, or about 4550 - 4575. There's also an open gap near 4375 from early October that is still open and always a possibility.
The DWCPF Index (S-fund) was all over the place yesterday after opening sharply lower, rallying back to show some gains, then flopping over again to close closer to the lows, but off of them. This was a possible test of the early December lows but of course today's action could be give us another test. That green line is the 280-day average or one trading year.
The EFA (I-fund) did some cleaning up as the large open gap filled near 76.60, and the 200-day EMA held, so there was some buying interest in those key areas. The rally in the dollar didn't help, and as we talked about above, I'm watching for that breakout in the UUP to be a potential fake out and a breakdown, which would benefit the I-fund.
BND (Bonds / F-fund) were down slightly but they closed well off their lows, and above the 50 and 200-day averages for a second straight day. I'm not a fan of the F-fund in this environment, but they could remain buoyant if stocks continue to struggle.
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.
