Friday's negative reversal day rolled over into Monday's open, as we might expect, and while we did get some negative returns at the close, the stock indices actually battled the bearish pressure and closed well off the lows of the day. The Dow actually closed in positive territory, but the weight of the losses in the semiconductor stocks kept the broader indices in the red, particularly the tech heavy Nasdaq. Bonds were down slightly as yields and the dollar ticked up.
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The market has been getting a little cranky over the last couple of days as the darlings of the AI rally have been giving back some of their recent gains. It looks troublesome on the chart with Friday's major negative reversal day and the follow through on the downside today, but realistically the recent losses only brought Nvidia down to where is was all the way back on -- March 5th, or 4 trading days ago. :^)
That negative reversal was dramatic and the concern is that it could be a major peak, and if the AI trade goes away it could mean trouble for the market overall as it has been riding the AI wave, or as some called it, a bubble. So far, the pullback has been contained and the action, while scary, is probably more healthy than anything. If Nvidia trades below 700 I might start getting concerned. There is an open gap by 825, as well as that large gap that opened after they reported earnings in February.
The upside momentum has been so strong that I want to give the market the benefit of the doubt, but that doesn't mean some backing and filling won't occur in the short time.
The highlight today will be the CPI report, which comes out before the opening bell. Inflation hasn't been a major concern recently but investors love a catalyst. A tame CPI report could bring about a Turnaround Tuesday after the recent modest pullback, or it could add fuel to the fire if the report is hot. Investors want those interest rate cuts, or at least they want the Fed talking about rate cuts, so the last thing they want to hear is that inflation is heating up again, and this morning's CPI should bring some kind of emotional response depending on the outcome.
The 10-year Treasury and the dollar were both up yesterday after trending lower for a couple of weeks. This may have helped put pressure on stock prices yesterday, but now both of these charts are already up again resistance, and if that resistance holds, it could be telling us that the pullback in stocks is nearing an end already.
We are certainly due for something more significant than a two-day pullback, and perhaps the recent losses were the start. While the small caps chart (S-fund) remains above the long term support line, the C-fund chart opened and closed below its support line yesterday. Is this an opening to go ahead and fill that large open gap from mid-February?
The S-fund also has an open gap looming near 1970, but that rising support line is still holding for now.
The CPI is sure to ignite some emotional trading at the open today, so I would pay more attention to how investors react to any initial knee-jerk reaction that we see at the opening bell, and then how the market closes, as this will weed out the trading noise.
The S&P 500 (C-fund) opened lower on Monday, as we might expect after the nasty negative reversal day on Friday, but the index battled back to close well off the lows so the trend remains up with perhaps a little more room on the downside for a pullback. The issues will get more real if this chart falls below its 20-day EMA. Not that falling below the 20-day EMA is a bull market killer, but it has remained above that average all year and it would just mean the dip buyers have run out of steam. Either that or the open gap below 5000 becomes too much of a lure, and from there we would want to see if buyers step up and buy at the bottom of that gap. The PMO indicator on the bottom continues to show a negative divergence.
The DWCPF (S-fund) is in a better position but it too could get pulled down into its open gap near 1970, while still remaining above its 50-day EMA. So this looks bullish but it has room to fall if the short-term support does falter. Whether it is worth selling and buying back near that 50-day EMA is debatable but for now I'm focused on the support near 2020 down to the 2010 area. If that breaks then the open gap comes into play.
The EFA (I-fund) gapped lower and gave back about 0.6% yesterday, but it remains in its ascending trading channel. As always, there are plenty of open gaps on this chart - one is overhead and the rest are below the current price.
BND (Bonds / F-fund) has stalled in recent days after its breakout above that blue descending channel. The open gaps above and below will be lures and the question is, which wants to get filled first? Today's CPI may help with that question.
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 market has been getting a little cranky over the last couple of days as the darlings of the AI rally have been giving back some of their recent gains. It looks troublesome on the chart with Friday's major negative reversal day and the follow through on the downside today, but realistically the recent losses only brought Nvidia down to where is was all the way back on -- March 5th, or 4 trading days ago. :^)
That negative reversal was dramatic and the concern is that it could be a major peak, and if the AI trade goes away it could mean trouble for the market overall as it has been riding the AI wave, or as some called it, a bubble. So far, the pullback has been contained and the action, while scary, is probably more healthy than anything. If Nvidia trades below 700 I might start getting concerned. There is an open gap by 825, as well as that large gap that opened after they reported earnings in February.
The upside momentum has been so strong that I want to give the market the benefit of the doubt, but that doesn't mean some backing and filling won't occur in the short time.
The highlight today will be the CPI report, which comes out before the opening bell. Inflation hasn't been a major concern recently but investors love a catalyst. A tame CPI report could bring about a Turnaround Tuesday after the recent modest pullback, or it could add fuel to the fire if the report is hot. Investors want those interest rate cuts, or at least they want the Fed talking about rate cuts, so the last thing they want to hear is that inflation is heating up again, and this morning's CPI should bring some kind of emotional response depending on the outcome.
The 10-year Treasury and the dollar were both up yesterday after trending lower for a couple of weeks. This may have helped put pressure on stock prices yesterday, but now both of these charts are already up again resistance, and if that resistance holds, it could be telling us that the pullback in stocks is nearing an end already.
We are certainly due for something more significant than a two-day pullback, and perhaps the recent losses were the start. While the small caps chart (S-fund) remains above the long term support line, the C-fund chart opened and closed below its support line yesterday. Is this an opening to go ahead and fill that large open gap from mid-February?
The S-fund also has an open gap looming near 1970, but that rising support line is still holding for now.
The CPI is sure to ignite some emotional trading at the open today, so I would pay more attention to how investors react to any initial knee-jerk reaction that we see at the opening bell, and then how the market closes, as this will weed out the trading noise.
The S&P 500 (C-fund) opened lower on Monday, as we might expect after the nasty negative reversal day on Friday, but the index battled back to close well off the lows so the trend remains up with perhaps a little more room on the downside for a pullback. The issues will get more real if this chart falls below its 20-day EMA. Not that falling below the 20-day EMA is a bull market killer, but it has remained above that average all year and it would just mean the dip buyers have run out of steam. Either that or the open gap below 5000 becomes too much of a lure, and from there we would want to see if buyers step up and buy at the bottom of that gap. The PMO indicator on the bottom continues to show a negative divergence.
The DWCPF (S-fund) is in a better position but it too could get pulled down into its open gap near 1970, while still remaining above its 50-day EMA. So this looks bullish but it has room to fall if the short-term support does falter. Whether it is worth selling and buying back near that 50-day EMA is debatable but for now I'm focused on the support near 2020 down to the 2010 area. If that breaks then the open gap comes into play.
The EFA (I-fund) gapped lower and gave back about 0.6% yesterday, but it remains in its ascending trading channel. As always, there are plenty of open gaps on this chart - one is overhead and the rest are below the current price.
BND (Bonds / F-fund) has stalled in recent days after its breakout above that blue descending channel. The open gaps above and below will be lures and the question is, which wants to get filled first? Today's CPI may help with that question.
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.
