Stocks were up yesterday with some decent follow through to Tuesday's rally. We saw some technical roadblocks get tested, some were broken but there's a few more in the way. The Dow gained a modest 48-points, but the broader indices performed much better, although we did see them close off their highs and actually the futures slipped a little more after the bell on some earnings releases. The small caps led on the upside while the dollar bounced back and put some pressure on the I-fund. Bonds gave up an early gain to close down again.
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The action was pretty good but so far only similar to prior short-term rallies that eventually failed in this bear market. At some point we will see either a major rally to entice more investors in, or an actual market bottom that kills the bear market, but with the Fed on deck next week and in the middle of a mission to raise interest rates and tighten their balance sheet, that probably isn't going to happen in July. Maybe not August or September either, but there will be these small playable bounces, and as of now, that feels like what this is.
As I have been talking about, we have a lot of data that suggests not only that we should be in a recession in the next 6 to 24 months, but that we could be in one already based on Q1 and Q2 GDP.
The 2-year and 10-year Treasury yields are inverted again - the 2-year T-note is paying more than the 10-year. We saw one in late March which suggested an impending recession. We saw an inversion in the fall of 2019 and investors dismissed it as economy was looking quite strong at the time, but of course 6-months later COVID caused that economic melt-down and a recession. Magic.
I posted the following charts before showing the previous four official recessions in the U.S.
July 1990–Mar 1991
Mar 2001–Nov 2001
Dec 2007–June 2009
Feb 2020–April 2020
The last time I talked about this I mentioned that stocks did not peak until well after the inversion but now that we've had 3 inversions including the one back in the fall of 2019, so the comparison may not be the same. The lower chart "indicator" is the 2/10 inversion showing what happened to the S&P 500 next. In these cases stocks did not peak right away but all eventually declined no matter how shallow the inversion was.
So, the inversion does not always mean immediate pain, but eventually a recession and / or a large decline in stocks is expected, and I suppose an argument can be made that we had the large decline already, but the current inversion throws a wrench in that. That makes me believe there is more pain to come, although it doesn't have to happen right away.
Just following up on oil as it remains in the down trend despite a 3rd straight positive day off the recent lows, and today should be a test as even a sideways move could break the descending resistance line.
With earnings coming in fast and furious over the next two plus weeks, and the Fed FOMC meeting next week, the action is fluid and while I came into this week look for a rally, I have been trying to stay nimble and the recent gains make the risk / reward going forward a little less appealing.
The S&P 500 (C-fund) has gotten through some stubborn resistance but there is still plenty more in the way. Yesterday's high was at the bottom of the June 10th open gap, but that gap is still not filled and would have to get to 4017 to do so. That's not that far off, and that perhaps that is the target for this rally. It did overtake the 50-day EMA by 10 points, which is a plus, but we've seen fake outs before so I'll give it a few days to confirm. The bear flag is still intact but getting over 3900 and the descending blue resistance line gives it a little more support.
The DWCPF (S-fund) nearly made it 2% again yesterday and it is in the same boat as the S&P as far as stalling at the bottom of the open gap, being back above the 50-day EMA, but still below some resistance near 1700.
EFA (I-fund) was down on the day after the dollar bounced back. It nearly filled a small gap that was opened on Tuesday. It also held below its blue flag like pattern. It could breakout above it, or fall back toward the middle of that flag and it may be the direction of the dollar that determines that.
BND (Bonds / F-fund) hit that 50-day EMA yet again, and it has been in that area just below it for 11 straight days. That's a bullish looking flag so I would suspect a breakout is coming, but someone is really putting the pressure on that 75.50 area.
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.
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The action was pretty good but so far only similar to prior short-term rallies that eventually failed in this bear market. At some point we will see either a major rally to entice more investors in, or an actual market bottom that kills the bear market, but with the Fed on deck next week and in the middle of a mission to raise interest rates and tighten their balance sheet, that probably isn't going to happen in July. Maybe not August or September either, but there will be these small playable bounces, and as of now, that feels like what this is.
As I have been talking about, we have a lot of data that suggests not only that we should be in a recession in the next 6 to 24 months, but that we could be in one already based on Q1 and Q2 GDP.
The 2-year and 10-year Treasury yields are inverted again - the 2-year T-note is paying more than the 10-year. We saw one in late March which suggested an impending recession. We saw an inversion in the fall of 2019 and investors dismissed it as economy was looking quite strong at the time, but of course 6-months later COVID caused that economic melt-down and a recession. Magic.
I posted the following charts before showing the previous four official recessions in the U.S.
July 1990–Mar 1991
Mar 2001–Nov 2001
Dec 2007–June 2009
Feb 2020–April 2020
The last time I talked about this I mentioned that stocks did not peak until well after the inversion but now that we've had 3 inversions including the one back in the fall of 2019, so the comparison may not be the same. The lower chart "indicator" is the 2/10 inversion showing what happened to the S&P 500 next. In these cases stocks did not peak right away but all eventually declined no matter how shallow the inversion was.
So, the inversion does not always mean immediate pain, but eventually a recession and / or a large decline in stocks is expected, and I suppose an argument can be made that we had the large decline already, but the current inversion throws a wrench in that. That makes me believe there is more pain to come, although it doesn't have to happen right away.
Just following up on oil as it remains in the down trend despite a 3rd straight positive day off the recent lows, and today should be a test as even a sideways move could break the descending resistance line.
With earnings coming in fast and furious over the next two plus weeks, and the Fed FOMC meeting next week, the action is fluid and while I came into this week look for a rally, I have been trying to stay nimble and the recent gains make the risk / reward going forward a little less appealing.
The S&P 500 (C-fund) has gotten through some stubborn resistance but there is still plenty more in the way. Yesterday's high was at the bottom of the June 10th open gap, but that gap is still not filled and would have to get to 4017 to do so. That's not that far off, and that perhaps that is the target for this rally. It did overtake the 50-day EMA by 10 points, which is a plus, but we've seen fake outs before so I'll give it a few days to confirm. The bear flag is still intact but getting over 3900 and the descending blue resistance line gives it a little more support.
The DWCPF (S-fund) nearly made it 2% again yesterday and it is in the same boat as the S&P as far as stalling at the bottom of the open gap, being back above the 50-day EMA, but still below some resistance near 1700.
EFA (I-fund) was down on the day after the dollar bounced back. It nearly filled a small gap that was opened on Tuesday. It also held below its blue flag like pattern. It could breakout above it, or fall back toward the middle of that flag and it may be the direction of the dollar that determines that.
BND (Bonds / F-fund) hit that 50-day EMA yet again, and it has been in that area just below it for 11 straight days. That's a bullish looking flag so I would suspect a breakout is coming, but someone is really putting the pressure on that 75.50 area.
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.
