Stocks rallied yet again on Tuesday, so no Turnaround Tuesday this week. The Dow added 743-points and once again the small caps led in a big way. They were selling some of the big tech stocks yesterday but there was enough interest in the smaller companies on the Nasdaq to eke out a modest gain. The I-fund was up but lagged as the dollar rallied, and bonds were up as yields slipped lower.
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We're clearly seeing signs of extremes in stocks but momentum in the stock market is a tough force to fight. Timing the market perfectly takes as much, if not more, luck than skill. That means trying to pick a top to this market, and the parabolic move we've seen in small caps recently, isn't going to be easy.
However, we know it won't last forever, and as I pointed out in a chart yesterday, the retracement of the gains in small caps can be as swift as the elevator ride up, so the question whether to try to pick a top, wait for the momentum to stop, or just hold, is personal and a product of individual tolerance for risk. The higher things go, the riskier the short-term environment becomes.
We're just heading into earnings season, which is typically a bullish period for stocks, but we also have a classic set up for a "sell the news" reaction as stocks get priced for perfections. Also, with interest rates perhaps on the verge of coming down, there is the risk of a sell the news reaction as lower rates get priced in now, but there is still time before those occur.
The small caps and the underperforming Equal Weighted S&P 500 have had a massive run in the last 5 days. While the returns for the year have not caught up between the two, you can see the angle of incline between the S&P 500 and the Equal Weighted S&P 500 (same 500 stocks) since the April low, is almost the same, and it happened in a hurry.
Just as week or so ago I was saying that small caps won't be able to gain traction until the Regional Bank stocks (KRE) that populate the Russell 2000 and the DWCPF Index (our S-fund) wakes up, and boy has it. The KRE was up another 4.6% just yesterday, and that's 17% in the last 6 trading days, and 23% in the last month.
If this fails, or wants to pull back, watch out S-fund.
One of the main market leaders was trailing the big three indices by a tremendous amount and the Transportation Index chart looked very vulnerable to another leg lower as it was threatening to test the recent lows just a few days ago. Here it is now at 2024 highs. It is hitting a triple top, which isn't as daunting as a double top, but the easy money here may have been made and a pause seems reasonable, but if this can blast through that resistance line easily than we would be entering stock market strength that is rarely seen.
This went from 2024 lows to 2024 highs in just one month.
The 10-year Treasury Yield closed at 4.16% yesterday while the 2-year Yield 4.43%. That actually inverted the yield curve a little more but one thing to watch, as we talked about yesterday, when these un-invert - that is when the 2-year yield moves lower than the 10-year - that's when the stock market has tended to struggle historically. We're not there yet.
So how long can this last? We don't have any major inflation reports coming out until July 26. The next monthly jobs report doesn't come out until August 2nd. As I mentioned above, earnings season will be key and the major market movers don't start reporting for another week. The next Fed meeting is still two weeks away, so we may have more time before the market could face a sell the news reaction to these events, since the good news seems to baked into prices already. Do I sound too optimistic? That could be a bad sign.
The S&P 500 (C-fund) is not blinking. Even though small caps have been trying to play catch up with the recent big moves, the S&P 500 has refused to roll over. A 0.64% daily gain is nothing to sneeze at but when compared to the S-fund's 2.6% gain yesterday it may have felt like missing out. Still the C-fund is up 19.7% this year and it remains the top dog for in 2024.
DWCPF (S-fund) continued its parabolic move yesterday with a 2.6% gain. There's still a lot of room above before it hits its all time highs from 2021 - not that it has to hit that level, but any attempt to get there, or to catch up to the C-fund, would be more tremendous short-term gains. But when this eventually stalls or falls, it can be swift so don't get too complacent.
The EFA (I-fund) was up but lagged the other stock funds yesterday as the dollar gained some ground. The area where it found support looks like it could hold after filling two open gaps (blue), but the other open gaps below (red) may say otherwise.
BND (bonds / F-fund) rallied as yields dipped yesterday. The open gap near 72.50 looked like an easy target but so far the bond bulls have kept it from making that move. So, both stocks and bonds have good looking charts and momentum behind them.
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.html
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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We're clearly seeing signs of extremes in stocks but momentum in the stock market is a tough force to fight. Timing the market perfectly takes as much, if not more, luck than skill. That means trying to pick a top to this market, and the parabolic move we've seen in small caps recently, isn't going to be easy.
However, we know it won't last forever, and as I pointed out in a chart yesterday, the retracement of the gains in small caps can be as swift as the elevator ride up, so the question whether to try to pick a top, wait for the momentum to stop, or just hold, is personal and a product of individual tolerance for risk. The higher things go, the riskier the short-term environment becomes.
We're just heading into earnings season, which is typically a bullish period for stocks, but we also have a classic set up for a "sell the news" reaction as stocks get priced for perfections. Also, with interest rates perhaps on the verge of coming down, there is the risk of a sell the news reaction as lower rates get priced in now, but there is still time before those occur.
The small caps and the underperforming Equal Weighted S&P 500 have had a massive run in the last 5 days. While the returns for the year have not caught up between the two, you can see the angle of incline between the S&P 500 and the Equal Weighted S&P 500 (same 500 stocks) since the April low, is almost the same, and it happened in a hurry.

Just as week or so ago I was saying that small caps won't be able to gain traction until the Regional Bank stocks (KRE) that populate the Russell 2000 and the DWCPF Index (our S-fund) wakes up, and boy has it. The KRE was up another 4.6% just yesterday, and that's 17% in the last 6 trading days, and 23% in the last month.

If this fails, or wants to pull back, watch out S-fund.
One of the main market leaders was trailing the big three indices by a tremendous amount and the Transportation Index chart looked very vulnerable to another leg lower as it was threatening to test the recent lows just a few days ago. Here it is now at 2024 highs. It is hitting a triple top, which isn't as daunting as a double top, but the easy money here may have been made and a pause seems reasonable, but if this can blast through that resistance line easily than we would be entering stock market strength that is rarely seen.

This went from 2024 lows to 2024 highs in just one month.
The 10-year Treasury Yield closed at 4.16% yesterday while the 2-year Yield 4.43%. That actually inverted the yield curve a little more but one thing to watch, as we talked about yesterday, when these un-invert - that is when the 2-year yield moves lower than the 10-year - that's when the stock market has tended to struggle historically. We're not there yet.
So how long can this last? We don't have any major inflation reports coming out until July 26. The next monthly jobs report doesn't come out until August 2nd. As I mentioned above, earnings season will be key and the major market movers don't start reporting for another week. The next Fed meeting is still two weeks away, so we may have more time before the market could face a sell the news reaction to these events, since the good news seems to baked into prices already. Do I sound too optimistic? That could be a bad sign.

The S&P 500 (C-fund) is not blinking. Even though small caps have been trying to play catch up with the recent big moves, the S&P 500 has refused to roll over. A 0.64% daily gain is nothing to sneeze at but when compared to the S-fund's 2.6% gain yesterday it may have felt like missing out. Still the C-fund is up 19.7% this year and it remains the top dog for in 2024.

DWCPF (S-fund) continued its parabolic move yesterday with a 2.6% gain. There's still a lot of room above before it hits its all time highs from 2021 - not that it has to hit that level, but any attempt to get there, or to catch up to the C-fund, would be more tremendous short-term gains. But when this eventually stalls or falls, it can be swift so don't get too complacent.

The EFA (I-fund) was up but lagged the other stock funds yesterday as the dollar gained some ground. The area where it found support looks like it could hold after filling two open gaps (blue), but the other open gaps below (red) may say otherwise.

BND (bonds / F-fund) rallied as yields dipped yesterday. The open gap near 72.50 looked like an easy target but so far the bond bulls have kept it from making that move. So, both stocks and bonds have good looking charts and momentum behind them.

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.html
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.