Stocks traded in a tight range on Tuesday leading into this morning's CPI report. After a slightly negative open, the dip buyers were right there to do their thing, pushing the stock market up the wall of worry. Then, with about 30 minutes or so before the close, the gains were wiped away in the S&P 500. Perhaps because of this morning's CPI. The small caps led again and a decline in the dollar helped the I-fund push up toward its recent highs.
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As we get today's CPI report, the question on everyone's mind is what it will mean to the Fed. Will the Fed stop cutting interest rates or is inflation too much of a concern - more so than the threat of a recession? As of yesterday the market was pricing in a 64% chance of another 0.25% interest rate hike at the May 3rd meeting. That's been jumping around between 40% and 70% over the last month, and today's CPI will certainly make it's mark on this data.
These one momentum moves in the stock market combined with climbing the wall of worry can be frustrating to market timers, especially when you really only get one chance per month to buy. After a 4 week rally it would feel like chasing to buy now, and if you're in stocks the data suggests selling, but the action in the indices does not. It looks quite good in many charts, although questionable in others, making matters more confusing.
The 2-year / 10-year Treasury Yield curve is inverted and has been since last July. This means shorter term bonds are paying higher yields than the longer term bonds, which is unusual and only happens where there's something askew in the economy/ All recessions tend to occur after a yield curve inversion, although not all yield curve inversions have led to a recession. In recent weeks the yield curve has actually rolled over again after a sharp move higher in early March.
The longer term chart above going back to the financial crisis, shows that the yield curve inverted starting in 2006. Yes, 2006, and we didn't have the economic breakdown and ferocious bear market until 2008 (the market actually peaked in late 2007.) I find it interesting that the yield curve inverted very briefly in August of 2019 and less than 6-months later we got the COVID driven recession. Hmm, who knew what, when?
The dollar has been falling and that, combined with OPEC+ cutting supplies, has led to a sharp increase in the price of oil over the last month. Other than the open gap below and the 200-day EMA overhead, this chart looks ready to explode higher. I suppose it could pullback first and create some kind of an inverted head and shoulders pattern while filling that gap, but this suggests that $90 to $100 is probably in our future, perhaps by the summer months. And we know what that means to gas prices, and meanwhile the economy is already on shaky ground.
The Dow Transportation Index, a good barometer for economic conditions, has been lagging this year, but perked up over the last couple of days. The chart still looks troubling unless it can somehow get back above 14,500. A breakdown from that bear flag pattern will likely take the rest of the market with it.
The banks have been on everyone's radar after a couple of failures this year. Were they isolated... we don't know yet. This week we start to get earnings from some of the major banks. As boring as that sounds, what they say may set the tone for the market that has been acting as if the bank failures were a rear-view mirror event. I put a red box around the banks that will report over the next week or so.
Chart source: https://www.ii.co.uk/investing-with-ii/international-investing/us-earnings-season#calendar
The CPI report comes out before the opening bell today so we might anticipate some kind of a gap opening, up or down. Then we'll see if it's the dip buying bulls or the bears who feast on that initial reaction.
The S&P 500 (C-fund) had a bit of a negative reversal day yesterday, although nothing overly serious. Perhaps just some jitters from investors as we head into the CPI report today. I see a bull flag (blue) on this chart, a red rising trading channel, a large open gap by 3975, and decreasing trading volume as the last two days were two of the lowest trading volume days of the year. The PMO indicator on the bottom may be looking like it is starting to rollover, but it is still well above its moving average.
The DWCPF (S-fund) has been quite perky the last couple of days. The regional bank stocks (KRE) have been doing better but they are still quite depressed and floundering near recent lows, so I am not too excited about the S-fund just yet. The bear flag is still in play, although getting quite long at this point.
The EFA (I-fund) is once again flirting with its 2023 highs as the weakness in the dollar continues to help this fund, which is now leading the TSP funds for the year. But again, too many open gaps below to get comfortable.
BND (Bonds / F-fund) was relative flat yesterday but today's CPI will likely push it hard one way or the other. Is inflation still a concern (meaning higher interest rates) or is it behind us? Breaking support line or a breakout above the recent highs are both in play on a big move.
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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[TD="width: 338, align: center"] Daily TSP Funds Return
[TR]
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[/TR]
[/TABLE]
[/TD]
[/TR]
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As we get today's CPI report, the question on everyone's mind is what it will mean to the Fed. Will the Fed stop cutting interest rates or is inflation too much of a concern - more so than the threat of a recession? As of yesterday the market was pricing in a 64% chance of another 0.25% interest rate hike at the May 3rd meeting. That's been jumping around between 40% and 70% over the last month, and today's CPI will certainly make it's mark on this data.
These one momentum moves in the stock market combined with climbing the wall of worry can be frustrating to market timers, especially when you really only get one chance per month to buy. After a 4 week rally it would feel like chasing to buy now, and if you're in stocks the data suggests selling, but the action in the indices does not. It looks quite good in many charts, although questionable in others, making matters more confusing.
The 2-year / 10-year Treasury Yield curve is inverted and has been since last July. This means shorter term bonds are paying higher yields than the longer term bonds, which is unusual and only happens where there's something askew in the economy/ All recessions tend to occur after a yield curve inversion, although not all yield curve inversions have led to a recession. In recent weeks the yield curve has actually rolled over again after a sharp move higher in early March.
The longer term chart above going back to the financial crisis, shows that the yield curve inverted starting in 2006. Yes, 2006, and we didn't have the economic breakdown and ferocious bear market until 2008 (the market actually peaked in late 2007.) I find it interesting that the yield curve inverted very briefly in August of 2019 and less than 6-months later we got the COVID driven recession. Hmm, who knew what, when?
The dollar has been falling and that, combined with OPEC+ cutting supplies, has led to a sharp increase in the price of oil over the last month. Other than the open gap below and the 200-day EMA overhead, this chart looks ready to explode higher. I suppose it could pullback first and create some kind of an inverted head and shoulders pattern while filling that gap, but this suggests that $90 to $100 is probably in our future, perhaps by the summer months. And we know what that means to gas prices, and meanwhile the economy is already on shaky ground.
The Dow Transportation Index, a good barometer for economic conditions, has been lagging this year, but perked up over the last couple of days. The chart still looks troubling unless it can somehow get back above 14,500. A breakdown from that bear flag pattern will likely take the rest of the market with it.
The banks have been on everyone's radar after a couple of failures this year. Were they isolated... we don't know yet. This week we start to get earnings from some of the major banks. As boring as that sounds, what they say may set the tone for the market that has been acting as if the bank failures were a rear-view mirror event. I put a red box around the banks that will report over the next week or so.
Chart source: https://www.ii.co.uk/investing-with-ii/international-investing/us-earnings-season#calendar
The CPI report comes out before the opening bell today so we might anticipate some kind of a gap opening, up or down. Then we'll see if it's the dip buying bulls or the bears who feast on that initial reaction.
The S&P 500 (C-fund) had a bit of a negative reversal day yesterday, although nothing overly serious. Perhaps just some jitters from investors as we head into the CPI report today. I see a bull flag (blue) on this chart, a red rising trading channel, a large open gap by 3975, and decreasing trading volume as the last two days were two of the lowest trading volume days of the year. The PMO indicator on the bottom may be looking like it is starting to rollover, but it is still well above its moving average.
The DWCPF (S-fund) has been quite perky the last couple of days. The regional bank stocks (KRE) have been doing better but they are still quite depressed and floundering near recent lows, so I am not too excited about the S-fund just yet. The bear flag is still in play, although getting quite long at this point.
The EFA (I-fund) is once again flirting with its 2023 highs as the weakness in the dollar continues to help this fund, which is now leading the TSP funds for the year. But again, too many open gaps below to get comfortable.
BND (Bonds / F-fund) was relative flat yesterday but today's CPI will likely push it hard one way or the other. Is inflation still a concern (meaning higher interest rates) or is it behind us? Breaking support line or a breakout above the recent highs are both in play on a big move.
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.
