Stocks continued their strong start to 2023 with another big rally on Wednesday, and another strong push into the close as the all important CPI report looms on deck. The Dow added 269-points with even larger percentage gains through the broader market indices. The dollar was flat, yields were down, and bond prices rallied.
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The CPI, which had been virtually a secondary consideration for years with inflation nearly nonexistent, has now become the highlight of the monthly economic data, and this morning before the opening bell we'll get the rear-view mirror reading for December. Recent readings have been coming off of the mid-2022 peak numbers, which is good, but the 1970's taught us that peaks don't have to hold. Inflation can come back if not handled aggressively, and this seems to be the motivation for the current hawkish Fed approach.
If we look at the market reaction to some of the more recent CPI releases, shown below by the red arrows, we can see that the consistent reaction is that we get a big move in stocks. The picture may describe what I am saying better than I can write about it, but you can see that we've had a few market reversals right after the release of the CPI, so the rally leading up to today's report may not be the best omen. However, two of those reports led to higher prices, and two led to sharp declines, so maybe it's a coin flip.
Both the reaction in October and December led to major intraday reversals, that is the day ended in the opposite direction of the initial opening bell reaction to the CPI. So, it may be hard to watch because the market could easily move very strongly in one direction or the other triggering emotions that could cause you to react, but it may not look the same a few hours later, so perhaps we need to sit back, stay patient, and see where the dust settles later in the day.
The argument for a decline off of this report is the longer term chart of the S&P 500, as well as some other index charts. Serious resistance is just overhead and that will surely get some market timers to sell, but if investor sentiment remains quite negative, there may not be enough bears left to sell.
However, we have seen a nice rally to start this year, which is still officially in a bear market, and this chart that I posted back on January 6th was trying to hint to us that the breakdown candle from the December CPI report on December 13th may need to get retested before anything is resolved - up or down.
The S-fund chart has actually already done this but above is the S&P 500 (C-fund) chart which has moved up sharply since I posted that top chart, but there is some work to be done to retrace some of that 12/13 candlestick. It's not shown on this chart but the 200-day EMA and the 200-day simple averages are at 3992 and 3987 respectively, so the chart would have to move above them to continue to retrace that candlestick.
I came into this year looking for a rally for several reasons, but mostly because everyone and their dog were calling for a terrible start to 2023 including many calls for a market crash. That may still happen, but the market probably needed to get some of those bears back on the bullish side first.
The market could certainly continue to rally to the dismay of all of the crash callers, but if we are going to get a crash, the people who are calling the shots - the big money - probably needed to suck in more people on the bullish side beforehand.
I've made some money this year but I've taken some profits already and have now become more neutral with this recent rally, and I'm sitting on the fence regarding the next big move. That's why I'm not completely in cash (G), nor completely in stocks.
Admin note: We are offering a 25% off annual subscriptions sale to TSP Talk Plus and RevShark's TSP Timing all this week. Whether you are new, or already subscriber, you can add another full year for 25% off the regular price. As I mentioned last week, Intrepid Timer's service will not be participating in the sale. The Last Look Report is already priced as low as we can go to keep it going, although it does have a 50% multi-service discount. More information
The DWCPF (S-fund) has put together 4 consecutive days of gains, and not small ones either. I mentioned above that this chart is now retracing some of that large breakdown candlestick from December 13 so it may be close to reaching its objective bear market rally price, but if it can stay perky and break through the resistance near 1680, we could see more bears jump on the bullish bandwagon.
The EFA / I-fund lagged the US funds again yesterday but it actually made its highest closing price since April with yesterday's gain. Resistance is still in the area, although it did close above that December 13th high.
BND (bonds / F-fund) continues to have big swings and yesterday's rally pushed it back above its 200-day average, closing above it for the second time in three days. There's always the possibility that we get a sell the news reaction in both stocks and bonds after this rally leading up to the CPI, so while the chart looks promising, today could be a pivot point for the bond market.
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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The CPI, which had been virtually a secondary consideration for years with inflation nearly nonexistent, has now become the highlight of the monthly economic data, and this morning before the opening bell we'll get the rear-view mirror reading for December. Recent readings have been coming off of the mid-2022 peak numbers, which is good, but the 1970's taught us that peaks don't have to hold. Inflation can come back if not handled aggressively, and this seems to be the motivation for the current hawkish Fed approach.
If we look at the market reaction to some of the more recent CPI releases, shown below by the red arrows, we can see that the consistent reaction is that we get a big move in stocks. The picture may describe what I am saying better than I can write about it, but you can see that we've had a few market reversals right after the release of the CPI, so the rally leading up to today's report may not be the best omen. However, two of those reports led to higher prices, and two led to sharp declines, so maybe it's a coin flip.
Both the reaction in October and December led to major intraday reversals, that is the day ended in the opposite direction of the initial opening bell reaction to the CPI. So, it may be hard to watch because the market could easily move very strongly in one direction or the other triggering emotions that could cause you to react, but it may not look the same a few hours later, so perhaps we need to sit back, stay patient, and see where the dust settles later in the day.
The argument for a decline off of this report is the longer term chart of the S&P 500, as well as some other index charts. Serious resistance is just overhead and that will surely get some market timers to sell, but if investor sentiment remains quite negative, there may not be enough bears left to sell.
However, we have seen a nice rally to start this year, which is still officially in a bear market, and this chart that I posted back on January 6th was trying to hint to us that the breakdown candle from the December CPI report on December 13th may need to get retested before anything is resolved - up or down.
The S-fund chart has actually already done this but above is the S&P 500 (C-fund) chart which has moved up sharply since I posted that top chart, but there is some work to be done to retrace some of that 12/13 candlestick. It's not shown on this chart but the 200-day EMA and the 200-day simple averages are at 3992 and 3987 respectively, so the chart would have to move above them to continue to retrace that candlestick.
I came into this year looking for a rally for several reasons, but mostly because everyone and their dog were calling for a terrible start to 2023 including many calls for a market crash. That may still happen, but the market probably needed to get some of those bears back on the bullish side first.
The market could certainly continue to rally to the dismay of all of the crash callers, but if we are going to get a crash, the people who are calling the shots - the big money - probably needed to suck in more people on the bullish side beforehand.
I've made some money this year but I've taken some profits already and have now become more neutral with this recent rally, and I'm sitting on the fence regarding the next big move. That's why I'm not completely in cash (G), nor completely in stocks.
Admin note: We are offering a 25% off annual subscriptions sale to TSP Talk Plus and RevShark's TSP Timing all this week. Whether you are new, or already subscriber, you can add another full year for 25% off the regular price. As I mentioned last week, Intrepid Timer's service will not be participating in the sale. The Last Look Report is already priced as low as we can go to keep it going, although it does have a 50% multi-service discount. More information
 | 25% Off Annual Premium Subscriptions!* Ends COB Friday... Click Here For More Information * For new or current subscribers |
The DWCPF (S-fund) has put together 4 consecutive days of gains, and not small ones either. I mentioned above that this chart is now retracing some of that large breakdown candlestick from December 13 so it may be close to reaching its objective bear market rally price, but if it can stay perky and break through the resistance near 1680, we could see more bears jump on the bullish bandwagon.
The EFA / I-fund lagged the US funds again yesterday but it actually made its highest closing price since April with yesterday's gain. Resistance is still in the area, although it did close above that December 13th high.
BND (bonds / F-fund) continues to have big swings and yesterday's rally pushed it back above its 200-day average, closing above it for the second time in three days. There's always the possibility that we get a sell the news reaction in both stocks and bonds after this rally leading up to the CPI, so while the chart looks promising, today could be a pivot point for the bond market.
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.
