Stocks were up yesterday with some intraday chopping around in front of today's important CPI report. An afternoon sell off followed by dip buying into the close may be showing the nervousness heading into this morning's inflation report. Bond yields were up and the dollar was down and that led to the small caps lagging and the I-fund leading on the day.
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The internal numbers were less attractive than the index gains might indicate as we saw more stocks down on the day than up, and that was due to the small caps lagging. It's not a concerning ratio but the negative divergence is something to be aware of as a possible warning sign that the rally may be running out of steam, and we have to watch to see if it becomes a trend. It could also just be some nerves in front of this morning's key report.
Economists are expecting a 3.2% year over year gain in the CPI report (Consumer Price Index), which comes out before the opening bell today, and any number above or below that figure will probably cause some volatility. A higher number will likely send bond yields higher (bond prices lower) and that could spook the stock market, although a slight beat may not be the worst thing as investors still want evidence that the economy isn't rolling over.
A lower number than 3.2% reading could push the 10-year Treasury Yield back below 4%, and that could be a positive for stocks, at least in the short-term, but we don't want too see too low of a number that would indicate recessionary issues.
The dollar is clinging to that 50-day EMA. It looks like it wants to break out, but as I mentioned yesterday, there was a similar dance in early December before it broke down, but that was triggered by the Fed's dovish FOMC meeting on December 13. It's interesting that the two large open gaps (red) above and below the current level, were both touched, but not filled.
A little follow up on the action in the Japanese Nikkei Stock market, which makes up 22% of the TSP's I-fund, which by far the largest holding in the I-fund. Boom! It was a mighty breakout to new highs, just as the chart's cup and handle formation suggested.
And longer-term that pushed the chart to levels not seen since 1990.
I have used that chart often over the years as a reminder that there's no guarantee that a stock market decline always comes right back to new highs, as we saw often in the US over the years. This one in Japan has taken 34 years and it's still not to that 1989 high.
We'll get the PPI report (Producer Prices) on Friday, which may not be as much of a market mover as the CPI, but it can still be impactful if it misses estimates.
Admin note: Thanks so much for the great response to our sale prices so far! We are celebrating our 20th anniversary this month and we're offering a discount on our annual subscriptions this week to new and current subscribers. You can sign up to a new service or add a year or two (in some cases) to your current subscription for 20% off the regular price (or 50% in some cases.) Thanks!
Use this link for more information: [url]https://www.tsptalk.com/annual_sub_sale.php
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The S&P 500 (C-fund) is back testing the December highs after that week long pullback. 4819 is the all time high so the long double top is still an issue. The ducks are lining up on the technical analysis side for the bulls with that 20-day EMA doing a good job of holding as support, but today's CPI Report could make a mess of that if it's not what the bulls are looking for. Those open gaps are still there down below so I have to keep looking over my shoulder at them as they are eventual possible downside targets.
DWCPF (S-fund) has been stabilizing but not exactly blasting off the recent lows and that is giving the chart a bear flag look to it. A move above 1950 would help that situation.
EFA (I-fund) led yesterday with the dollar down and there is a little space still open in that red overhead gap. If it gets that high it would seem probable that it would also test the recent highs, especially if Japan's market keeps rallying, but many of the European markets are hanging around their recent highs as well, so it looks pretty good at the moment.
BND (bonds / F-fund) posted a negative reversal day and we have a possible bear flag forming here as well. Like the S-fund, this bearish technical set up would be nullified with a decent rally back up near 73.50.
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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The internal numbers were less attractive than the index gains might indicate as we saw more stocks down on the day than up, and that was due to the small caps lagging. It's not a concerning ratio but the negative divergence is something to be aware of as a possible warning sign that the rally may be running out of steam, and we have to watch to see if it becomes a trend. It could also just be some nerves in front of this morning's key report.
Economists are expecting a 3.2% year over year gain in the CPI report (Consumer Price Index), which comes out before the opening bell today, and any number above or below that figure will probably cause some volatility. A higher number will likely send bond yields higher (bond prices lower) and that could spook the stock market, although a slight beat may not be the worst thing as investors still want evidence that the economy isn't rolling over.
A lower number than 3.2% reading could push the 10-year Treasury Yield back below 4%, and that could be a positive for stocks, at least in the short-term, but we don't want too see too low of a number that would indicate recessionary issues.
The dollar is clinging to that 50-day EMA. It looks like it wants to break out, but as I mentioned yesterday, there was a similar dance in early December before it broke down, but that was triggered by the Fed's dovish FOMC meeting on December 13. It's interesting that the two large open gaps (red) above and below the current level, were both touched, but not filled.
A little follow up on the action in the Japanese Nikkei Stock market, which makes up 22% of the TSP's I-fund, which by far the largest holding in the I-fund. Boom! It was a mighty breakout to new highs, just as the chart's cup and handle formation suggested.
And longer-term that pushed the chart to levels not seen since 1990.
I have used that chart often over the years as a reminder that there's no guarantee that a stock market decline always comes right back to new highs, as we saw often in the US over the years. This one in Japan has taken 34 years and it's still not to that 1989 high.
We'll get the PPI report (Producer Prices) on Friday, which may not be as much of a market mover as the CPI, but it can still be impactful if it misses estimates.
Admin note: Thanks so much for the great response to our sale prices so far! We are celebrating our 20th anniversary this month and we're offering a discount on our annual subscriptions this week to new and current subscribers. You can sign up to a new service or add a year or two (in some cases) to your current subscription for 20% off the regular price (or 50% in some cases.) Thanks!
Use this link for more information: [url]https://www.tsptalk.com/annual_sub_sale.php
[/URL]
The S&P 500 (C-fund) is back testing the December highs after that week long pullback. 4819 is the all time high so the long double top is still an issue. The ducks are lining up on the technical analysis side for the bulls with that 20-day EMA doing a good job of holding as support, but today's CPI Report could make a mess of that if it's not what the bulls are looking for. Those open gaps are still there down below so I have to keep looking over my shoulder at them as they are eventual possible downside targets.
DWCPF (S-fund) has been stabilizing but not exactly blasting off the recent lows and that is giving the chart a bear flag look to it. A move above 1950 would help that situation.
EFA (I-fund) led yesterday with the dollar down and there is a little space still open in that red overhead gap. If it gets that high it would seem probable that it would also test the recent highs, especially if Japan's market keeps rallying, but many of the European markets are hanging around their recent highs as well, so it looks pretty good at the moment.
BND (bonds / F-fund) posted a negative reversal day and we have a possible bear flag forming here as well. Like the S-fund, this bearish technical set up would be nullified with a decent rally back up near 73.50.
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.
