It was an uneventful start to the new month as stocks traded in a fairly tight range while closing near the lows of that range. The losses were minor despite the news that failing First Republic Bank being bought by JP Morgan Chase. The Dow gave up 46-points, the S&P 500 was flat, and only the S-fund managed a slight gain on the day. Yields were up sharply sending bond prices and the F-fund down, and the I-fund lagged because of strength in the dollar.
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It was a relatively muted response to the First Republic Bank takeover. Some say it ends the banking crisis saga, while others say it opens a can of unintended consequences as the too big to fail banks get bigger. The KRE Regional Bank Index was actually down another 2.8% yesterday, so investors aren't reacting as if that was some kind of a solution.
The market was mostly bracing for this week's FOMC meeting, another interest rate hike and of course comments from the Fed that have a tendency to shake up the market. I would say to expect more of the same quiet action today, but it every time I do say something like that we seem to get a big expected move in the market, so I won't predict anything for today. :^)
The 10-year Treasury yield and the dollar were both up sharply on some strong growth and inflationary data in the ISM Manufacturing Index and Construction Spending data. That inverted head and shoulders pattern on TNX would suggest to me that yields would break above the recent highs, but the bond market has a mind of its own and it often does the opposite of what the chart suggests. All I know is that the stock market would probably prefer lower yields at this point.
The dollar broke above some resistance although it did stall at the 50-day EMA. Again here, the market would probably prefer that this stay down a while longer. The F-flag would suggest a breakout to the upside eventually and more rate hikes from the Fed could do that.
One more look at the May seasonality calendar shows that historically, most of the strength this month comes in the first week and surrounding Memorial Day weekend. After this week however, the bears may have the advantage during the weaker stretch of the month.
Treasury Secretary Janet Yellen is now saying that the drop dead date for the debt ceiling is June 1st, which would be the last day the US would be able to pay its bill if it is not raised again. The Treasury Departments tends to be conservative in these forecasts and other analysts believe a recent surge tax revenue could push that date into July.
The Fed's 2-day FOMC Meeting starts today. Apple reports earnings on Thursday. We will we get the April jobs report on Friday.
The S&P 500 (C-fund) backed off after nearing the February highs so maybe it is time for a double top pullback? That typical reaction could be overruled by the Fed and Apple this week, but there's always something in the way so I just try to respect the chart formations and assume they will do what they tend to do. There's a lot of resistance in that 4185 - 4200 area. We did get a nearly symmetrical pullback in April compared to the one in early February after hitting that 4200 area, so perhaps that dip last week was the double top pullback. The only way to know is if we see new highs and, if so, if they can hold.
The DWCPF (S-fund) was the lone winner yesterday (depending on the posted I-fund price, but EFA was down) but you can see how effective that resistance was on this chart, which did have some solid gains earlier in the day. The bear flags, the descending resistance, and the 50-day EMA are all working against this chart right now, so a breakout would be impressive, but maybe unrealistic unless the Fed gives the market some bullish fodder.
The EFA (I-fund) was down on the day with the dollar rallying 0.50% on Monday. It is still right near the recent high so it remains resilient. It may be running out of steam but the bears have not taken advantage of that yet.
BND (Bonds / F-fund) was down sharply finishing up the right shoulder of that head and shoulders pattern and filling in another gap. It is resting on key support where the neckline of the head and shoulders pattern is meeting with the 50 and 200-day EMAs. A breakdown here would possibly be a precursor to an attempt to fill that open gap from March near 71.50. A longer term chart (not shown) looks much more favorable for bonds, but this short-term action looks more shaky.
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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It was a relatively muted response to the First Republic Bank takeover. Some say it ends the banking crisis saga, while others say it opens a can of unintended consequences as the too big to fail banks get bigger. The KRE Regional Bank Index was actually down another 2.8% yesterday, so investors aren't reacting as if that was some kind of a solution.
The market was mostly bracing for this week's FOMC meeting, another interest rate hike and of course comments from the Fed that have a tendency to shake up the market. I would say to expect more of the same quiet action today, but it every time I do say something like that we seem to get a big expected move in the market, so I won't predict anything for today. :^)
The 10-year Treasury yield and the dollar were both up sharply on some strong growth and inflationary data in the ISM Manufacturing Index and Construction Spending data. That inverted head and shoulders pattern on TNX would suggest to me that yields would break above the recent highs, but the bond market has a mind of its own and it often does the opposite of what the chart suggests. All I know is that the stock market would probably prefer lower yields at this point.
The dollar broke above some resistance although it did stall at the 50-day EMA. Again here, the market would probably prefer that this stay down a while longer. The F-flag would suggest a breakout to the upside eventually and more rate hikes from the Fed could do that.
One more look at the May seasonality calendar shows that historically, most of the strength this month comes in the first week and surrounding Memorial Day weekend. After this week however, the bears may have the advantage during the weaker stretch of the month.
Treasury Secretary Janet Yellen is now saying that the drop dead date for the debt ceiling is June 1st, which would be the last day the US would be able to pay its bill if it is not raised again. The Treasury Departments tends to be conservative in these forecasts and other analysts believe a recent surge tax revenue could push that date into July.
The Fed's 2-day FOMC Meeting starts today. Apple reports earnings on Thursday. We will we get the April jobs report on Friday.
The S&P 500 (C-fund) backed off after nearing the February highs so maybe it is time for a double top pullback? That typical reaction could be overruled by the Fed and Apple this week, but there's always something in the way so I just try to respect the chart formations and assume they will do what they tend to do. There's a lot of resistance in that 4185 - 4200 area. We did get a nearly symmetrical pullback in April compared to the one in early February after hitting that 4200 area, so perhaps that dip last week was the double top pullback. The only way to know is if we see new highs and, if so, if they can hold.
The DWCPF (S-fund) was the lone winner yesterday (depending on the posted I-fund price, but EFA was down) but you can see how effective that resistance was on this chart, which did have some solid gains earlier in the day. The bear flags, the descending resistance, and the 50-day EMA are all working against this chart right now, so a breakout would be impressive, but maybe unrealistic unless the Fed gives the market some bullish fodder.
The EFA (I-fund) was down on the day with the dollar rallying 0.50% on Monday. It is still right near the recent high so it remains resilient. It may be running out of steam but the bears have not taken advantage of that yet.
BND (Bonds / F-fund) was down sharply finishing up the right shoulder of that head and shoulders pattern and filling in another gap. It is resting on key support where the neckline of the head and shoulders pattern is meeting with the 50 and 200-day EMAs. A breakdown here would possibly be a precursor to an attempt to fill that open gap from March near 71.50. A longer term chart (not shown) looks much more favorable for bonds, but this short-term action looks more shaky.
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.
