Between the concerns about tariffs, the tick up in inflation, and the Fed's more hawkish outlook on interest rates, it may be surprising to see that the S&P 500 closed just 4-points below its all time high on Friday. The indices were fairly flat by Friday's close and it was bonds that led the way as the 10-year yield fell sharply on the day. The I-fund was down but it is still outpacing the other TSP funds for the year.
It has been a heck of a month since the inauguration and between the plethora of executive orders, the tariffs, and a Fed that is less likely to cut rates anytime soon, the S&P 500 is basically sitting at its all time highs. Is it climbing the wall of worry? Has the environment gotten more business friendly? It may be a lot of things but one thing isn't certain - where it goes from here.
Small caps are lagging this month as the chances of an interest rate cut by the May FOMC meeting has diminished greatly after some hotter than expected inflation data. However, the last two trading days saw the 10-year Treasury Yield fall sharply after filling in an open gap near 4.63%. I had been wondering why yields started to fall after the recent data, but if you recall earlier this month we posted that while President Trump said he was not going to try to pressure Fed Chair Powell to cut interest rates, instead he was going to focus policies on helping move the yield on the 10-year down lower. The Fed pays very close attention to the 2 and 10-year yields when determining their Fed Funds Rate.
The dollar (UUP) gapped down on Friday and it continues to drift lower, which has really helped the I-fund this year. It made its lowest close of the year to end the week, but it's not too difficult to spot the bull flag in the chart above, and that could mean the 29 area will be tough support. It is below the 50-day EMA so the technical picture is getting a little muddied.
ACWX (the I-fund tracking index) has blasted off this year leaving most TSP participants behind after it had become one of the least popular funds available to us over the years. There's room on the upside before testing a possible double top, but it has come a long way in a short time and a some kind of pullback could be due, but it certainly has the momentum. There are some negative MACD divergences in the TSP stock fund charts, and that includes this one.
I had been getting concerned about the chart of the market leading Dow Transportation Index in recent weeks. You can see the bearish head and shoulders pattern in red which, although not shown, is all part of the right shoulder of an even larger ominous looking head and shoulders pattern.
Friday's action had the chart bust above the right shoulder, however it could be just testing the middle of the head, which is another one of the potential outcomes from a head and shoulders pattern.
If the Transportation Index chart can make it make to, and hopefully above, the 16,900 area the bulls will have potentially sidestepped a lot of trouble, otherwise that trouble could start now.
It's a fairly quiet week on the economic data front, although we get a few housing data reports. But this week is also a post-holiday week after a positive pre-holiday week, and history suggests the bears may put up a fight for the next 4+ trading days.
The S&P 500 (C-fund) has formed a cup and handle formation, and they tend to be a good as it gets for preceding a potential breakout. The problem is that we're not seeing a lot of confirmation in the indicators. Both the PMO momentum indicator and the Moving Average Convergence / Divergence indicator (MACD) suggest some negative divergences in the index, so while I'd like to be more bullish, I'm on the fence and more neutral right now.
DWCPF (S-fund) also has a bullish looking consolidation forming. It's not quite the cup and handle formation of the S&P 500 because it is not testing the prior highs yet, so there is some skepticism. As I mentioned above, lower yields could help this try to catch up to the S&P 500, but can yields move lower if inflation remains an issue? As we talked about above, that may be the president's plan.
BND (F-fund) bounced back quickly after the CPI report sent it reeling mid-week. The 200-day EMA seems to have held on the pullback, and it also filled in one of the open gaps in the process. There are some small open gaps below that could be a draw, and there is potential resistance overhead, but this is looking like it may be a longer term bottom being formed.
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
Questions, comments, or issues with today's commentary? We can discuss it in the Forum.
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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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It has been a heck of a month since the inauguration and between the plethora of executive orders, the tariffs, and a Fed that is less likely to cut rates anytime soon, the S&P 500 is basically sitting at its all time highs. Is it climbing the wall of worry? Has the environment gotten more business friendly? It may be a lot of things but one thing isn't certain - where it goes from here.
Small caps are lagging this month as the chances of an interest rate cut by the May FOMC meeting has diminished greatly after some hotter than expected inflation data. However, the last two trading days saw the 10-year Treasury Yield fall sharply after filling in an open gap near 4.63%. I had been wondering why yields started to fall after the recent data, but if you recall earlier this month we posted that while President Trump said he was not going to try to pressure Fed Chair Powell to cut interest rates, instead he was going to focus policies on helping move the yield on the 10-year down lower. The Fed pays very close attention to the 2 and 10-year yields when determining their Fed Funds Rate.
The dollar (UUP) gapped down on Friday and it continues to drift lower, which has really helped the I-fund this year. It made its lowest close of the year to end the week, but it's not too difficult to spot the bull flag in the chart above, and that could mean the 29 area will be tough support. It is below the 50-day EMA so the technical picture is getting a little muddied.
ACWX (the I-fund tracking index) has blasted off this year leaving most TSP participants behind after it had become one of the least popular funds available to us over the years. There's room on the upside before testing a possible double top, but it has come a long way in a short time and a some kind of pullback could be due, but it certainly has the momentum. There are some negative MACD divergences in the TSP stock fund charts, and that includes this one.
I had been getting concerned about the chart of the market leading Dow Transportation Index in recent weeks. You can see the bearish head and shoulders pattern in red which, although not shown, is all part of the right shoulder of an even larger ominous looking head and shoulders pattern.
Friday's action had the chart bust above the right shoulder, however it could be just testing the middle of the head, which is another one of the potential outcomes from a head and shoulders pattern.
If the Transportation Index chart can make it make to, and hopefully above, the 16,900 area the bulls will have potentially sidestepped a lot of trouble, otherwise that trouble could start now.
It's a fairly quiet week on the economic data front, although we get a few housing data reports. But this week is also a post-holiday week after a positive pre-holiday week, and history suggests the bears may put up a fight for the next 4+ trading days.
The S&P 500 (C-fund) has formed a cup and handle formation, and they tend to be a good as it gets for preceding a potential breakout. The problem is that we're not seeing a lot of confirmation in the indicators. Both the PMO momentum indicator and the Moving Average Convergence / Divergence indicator (MACD) suggest some negative divergences in the index, so while I'd like to be more bullish, I'm on the fence and more neutral right now.
DWCPF (S-fund) also has a bullish looking consolidation forming. It's not quite the cup and handle formation of the S&P 500 because it is not testing the prior highs yet, so there is some skepticism. As I mentioned above, lower yields could help this try to catch up to the S&P 500, but can yields move lower if inflation remains an issue? As we talked about above, that may be the president's plan.
BND (F-fund) bounced back quickly after the CPI report sent it reeling mid-week. The 200-day EMA seems to have held on the pullback, and it also filled in one of the open gaps in the process. There are some small open gaps below that could be a draw, and there is potential resistance overhead, but this is looking like it may be a longer term bottom being formed.
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
Questions, comments, or issues with today's commentary? We can discuss it in the Forum.
Daily Market Commentary Archives
For more info our other premium services, please go here... www.tsptalk.com/premiums.php
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.
