Stocks pulled back on Monday, shaving off a big piece of last week's gains. The dollar was up sharply again and that is continuing to act as an anchor to the price of stocks and commodities. The Dow lost 164-point but actually held up best despite the fact that the larger multi-national companies are the most negatively impacted by the strong dollar. The Nasdaq and the small caps were the laggards with losses of near 2%. The I-fund is also highly sensitive to the dollar and it lost well over 1%. Bonds were up but closed off their highs.
[TABLE="align: center"]
[TR]
[TD="align: center"]
[/TD]
[TD]
[/TD]
[TD="width: 338, align: center"] Daily TSP Funds Return
[TABLE="align: center"]
[TR]
[TD="align: right"][/TD]
[/TR]
[/TABLE]
[/TD]
[/TR]
[/TABLE]
The pressure being put on the stock market from the rising interest rate environment, the 2nd straight negative GDP quarter for the economy, and this relentless rally in the dollar is making it tough for dip buyers come to the table. As earnings start to get reported we will undoubtedly hear from some companies that the strength in the dollar is going to negatively impact their earnings either in the recent quarter, or in their guidance for future quarters. Companies are never shy about pointing to a scapegoat when things are slowing down.
We've spent a dozen or more years with the Fed having the stock market's back by lowering rates or providing quantitative easing to add liquidity to the market at any sign of trouble, but that isn't happening right now. The Fed is on a mission to raise interest rates and tighten their monetary policy so we are not getting the reflexive snap back rallies back up to new highs as we had seen over and over again since the 2008 bear market lows.
Even in 2020 when we had a devastating market crash because of Covid, the Fed cranked up the printing presses and stocks came roaring right back.
Unfortunately for them, and the governments incredible spending spree to get us out of the economic trouble Covid put the country in, that kind of spending and low cost money created what we have today - inflation like we haven't seen in decades. This is something new to any of the investors who haven't been around before the financial crisis and before the Fed bailed us out every time somebody sneezed.
Now we have to deal with it, and the attitude toward investing may have to change, at least until the Fed eventually pivots and then the dip buyer may get rewarded.
As I have said many times however, bear market rallies are a treat. An average annual gain in the stocks market is something between 8% and 11%. We can see that in a bear market in a couple of weeks. The problem is it is usually surrounded by even more severe declines.
As you look at the TSP Fund charts down below, notice that the rebounds are getting a little more shallow each time. That doesn't mean we won't get a big bounce again at some point, but this bear market could be around as long as the Fed is being hawkish and because of that I continue with my hit and run approach to managing my TSP account.
The CPI report will be released on Wednesday morning before the opening bell. On Thursday we will start seeing some major banks reporting second quarter earnings, but it won't be until the last week in July that we'll see the likes of Apple, Amazon, Microsoft, etc., reporting. July 27 is also the day we will hear from the Fed about rates hikes, so buckle up for late July!
The S&P 500 (C-fund) flipped over after last week's rally and that is a concern because of the possible lower high. It hasn't reached that open gap near 4000 yet as many have been waiting for, and after yesterday's down day investors will be watching the bottom of that bear flag as well as the 20-day EMA for support. A move below 3800 would certainly put the June low in the picture, and that would break the bear flag. If that's the case, the downside target could be somewhere near 3300 - 3200. It would have to get above 3950 - 4000 at this point to look more bullish.
The DWCPF (S-fund) is in the same boat. We have a bear flag, in a descending trading channel, below the 50-day EMA. If the bulls want to stay in the game, they probably need to keep this above 1575.
EFA (I-fund) is back below its bear flag and the big gain in the dollar was a big factor. Just take a look at the mirror image between EFA and the dollar ETF UUP. When UUP goes up, EFA has come down. When UUP goes down, EFA has moved up.
BND (Bonds / F-fund) was up nicely with a big gap up and the bottom of that filled gap just below 75, combined with the support from the old resistance line gave it a springboard to bounce off. It's not out of the woods yet, but seeing that hold could be a positive sign for bonds, and its next goal would be to get back above that 50-day EMA.
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.
[TABLE="align: center"]
[TR]
[TD="align: center"]
[TD]
[/TD]
[TD="width: 338, align: center"] Daily TSP Funds Return
[TR]
[TD="align: right"][/TD]
[/TR]
[/TABLE]
[/TD]
[/TR]
[/TABLE]
The pressure being put on the stock market from the rising interest rate environment, the 2nd straight negative GDP quarter for the economy, and this relentless rally in the dollar is making it tough for dip buyers come to the table. As earnings start to get reported we will undoubtedly hear from some companies that the strength in the dollar is going to negatively impact their earnings either in the recent quarter, or in their guidance for future quarters. Companies are never shy about pointing to a scapegoat when things are slowing down.
We've spent a dozen or more years with the Fed having the stock market's back by lowering rates or providing quantitative easing to add liquidity to the market at any sign of trouble, but that isn't happening right now. The Fed is on a mission to raise interest rates and tighten their monetary policy so we are not getting the reflexive snap back rallies back up to new highs as we had seen over and over again since the 2008 bear market lows.
Even in 2020 when we had a devastating market crash because of Covid, the Fed cranked up the printing presses and stocks came roaring right back.
Unfortunately for them, and the governments incredible spending spree to get us out of the economic trouble Covid put the country in, that kind of spending and low cost money created what we have today - inflation like we haven't seen in decades. This is something new to any of the investors who haven't been around before the financial crisis and before the Fed bailed us out every time somebody sneezed.
Now we have to deal with it, and the attitude toward investing may have to change, at least until the Fed eventually pivots and then the dip buyer may get rewarded.
As I have said many times however, bear market rallies are a treat. An average annual gain in the stocks market is something between 8% and 11%. We can see that in a bear market in a couple of weeks. The problem is it is usually surrounded by even more severe declines.
As you look at the TSP Fund charts down below, notice that the rebounds are getting a little more shallow each time. That doesn't mean we won't get a big bounce again at some point, but this bear market could be around as long as the Fed is being hawkish and because of that I continue with my hit and run approach to managing my TSP account.
The CPI report will be released on Wednesday morning before the opening bell. On Thursday we will start seeing some major banks reporting second quarter earnings, but it won't be until the last week in July that we'll see the likes of Apple, Amazon, Microsoft, etc., reporting. July 27 is also the day we will hear from the Fed about rates hikes, so buckle up for late July!
The S&P 500 (C-fund) flipped over after last week's rally and that is a concern because of the possible lower high. It hasn't reached that open gap near 4000 yet as many have been waiting for, and after yesterday's down day investors will be watching the bottom of that bear flag as well as the 20-day EMA for support. A move below 3800 would certainly put the June low in the picture, and that would break the bear flag. If that's the case, the downside target could be somewhere near 3300 - 3200. It would have to get above 3950 - 4000 at this point to look more bullish.
The DWCPF (S-fund) is in the same boat. We have a bear flag, in a descending trading channel, below the 50-day EMA. If the bulls want to stay in the game, they probably need to keep this above 1575.
EFA (I-fund) is back below its bear flag and the big gain in the dollar was a big factor. Just take a look at the mirror image between EFA and the dollar ETF UUP. When UUP goes up, EFA has come down. When UUP goes down, EFA has moved up.
BND (Bonds / F-fund) was up nicely with a big gap up and the bottom of that filled gap just below 75, combined with the support from the old resistance line gave it a springboard to bounce off. It's not out of the woods yet, but seeing that hold could be a positive sign for bonds, and its next goal would be to get back above that 50-day EMA.
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.
