The bulls came out swinging on Monday morning, pushing stocks up in early trading, but the bears showed that they are still around and started to sell that opening rally and eventually pushed the indices near their lows of the day at the close. Small caps and the I-fund eked out modest gains, but those small caps gave up most of their early gain of over 1%. Bonds were up as longer-term yields moved lower.
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Let's take a look at some glass half full analysis. The Dow Transportation Index - considered the market leader for more than a century, was up 1.4% yesterday and has been acting quite well recently, but it seemed to have decoupled from the S&P and Dow last year. The bulls and the Dow Theorists (google it) see this recent strength as a good sign going forward but we may need to see a little more as the chart closes in on longer-term resistance (middle chart below.)
The Dow ($INDU) broke above its descending resistance line earlier this month, and the inverted head and shoulders pattern could be signaling good things happening in the intermediate term. But the Dow Transports (middle chart above) have not quite confirmed this, although the inverted head and shoulders pattern is a good development.
Now, from the concerning side, let's revisit the inverted yield curve. Historically when we get an inverted yield curve, where the 2-year Treasury Yield is paying more than the 10-year T-Note, investors can get a little nervous but ironically the stocks market doesn't do that poorly when the two yields are inverted, but rather when the inversion begins to go the other way, and that's because it happens when the economy is weakening and the Fed starts cutting short-term interest rates.
The initial inversion can cause a correction in stocks as you see with some of those blue arrows, but the real damage is done once the yield curve is steepening (reversing) again, and back above the -0- line. Notice the larger red arrows on the S&P 500 chart ($SPX) start to decline after the yield curve bottoms and moves back above 0.0. We are far from that right now as the yield curve is nearing its most inverted levels again.
DWCPF (S-fund) outperformed yesterday despite losing most of its large early gains. That's two negative reversal days in a row as the broader market tries to catch up to the performance of the large tech stocks. It's been acting better lately but I see that the 50-day EMA (purple line) is back testing the 200-day EMA. A crossover would be good for the intermediate term but often when they cross you can see a short-term overbought pullback in stocks, and that may be the case this time, but we had a similar look back in March that turned out to be more than an overbought pullback.
The S-fund index has been below the 50-day EMA since the breakdown in early 2022, and now it is making that second attempt to get back above it. It is getting close to make or break time, as this common and popular technical analysis indicator flirts with another crossover.
It's not a holiday week, but it may feel like one with the 4th of July holiday falling on a Tuesday of next week, making for a possible 4-day weekend for some on Wall Street and around the country. That should make next Monday a very low volume trading day, which normally helps the bulls, unless there is some negative news released in which case the indices could be pushed around easily. And with the political and geopolitical turmoil heating up again, that's not a long shot. There's also important inflationary economic data being released on Friday with the Personal Income and PCE Prices reports.
The S&P 500 (C-fund) tried to rally early to start the week, but the bears came back to put up another fight and push the index down for the 5th time in the last 6 trading days. The chart remains in an uptrend, but for now it may be on a short-term move to the bottom of that blue parallel trading channel. If that's the case, how it reacts down there will be telling as far as whether the stocks market remains in the clear, or if all of the 2022 and early 2023 bearishness makes its way back into the market after investors had gotten more and bullish in recent months. 4225 looks like a key line in the sand if the bottom of the channel is tested and fails, but we're getting ahead of ourselves.
The EFA (I-fund) was up slightly yesterday but it didn't even make a dent in Friday's big open gap. The dollar was down slightly, and that still has some room on the downside to fill its open gap, but the recent changes in trend on these charts are getting more serious.
BND (Bonds / F-fund) is showing mixed messages with two bull flags (blue and green), and one bear flag (red). I'm still focused on its ability to hang round those two moving averages, the 50 and 200-day EMAs. Yesterday's modest gain pushed it above the 50-day EMA again, and right on the 200-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 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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Let's take a look at some glass half full analysis. The Dow Transportation Index - considered the market leader for more than a century, was up 1.4% yesterday and has been acting quite well recently, but it seemed to have decoupled from the S&P and Dow last year. The bulls and the Dow Theorists (google it) see this recent strength as a good sign going forward but we may need to see a little more as the chart closes in on longer-term resistance (middle chart below.)
The Dow ($INDU) broke above its descending resistance line earlier this month, and the inverted head and shoulders pattern could be signaling good things happening in the intermediate term. But the Dow Transports (middle chart above) have not quite confirmed this, although the inverted head and shoulders pattern is a good development.
Now, from the concerning side, let's revisit the inverted yield curve. Historically when we get an inverted yield curve, where the 2-year Treasury Yield is paying more than the 10-year T-Note, investors can get a little nervous but ironically the stocks market doesn't do that poorly when the two yields are inverted, but rather when the inversion begins to go the other way, and that's because it happens when the economy is weakening and the Fed starts cutting short-term interest rates.
The initial inversion can cause a correction in stocks as you see with some of those blue arrows, but the real damage is done once the yield curve is steepening (reversing) again, and back above the -0- line. Notice the larger red arrows on the S&P 500 chart ($SPX) start to decline after the yield curve bottoms and moves back above 0.0. We are far from that right now as the yield curve is nearing its most inverted levels again.
DWCPF (S-fund) outperformed yesterday despite losing most of its large early gains. That's two negative reversal days in a row as the broader market tries to catch up to the performance of the large tech stocks. It's been acting better lately but I see that the 50-day EMA (purple line) is back testing the 200-day EMA. A crossover would be good for the intermediate term but often when they cross you can see a short-term overbought pullback in stocks, and that may be the case this time, but we had a similar look back in March that turned out to be more than an overbought pullback.
The S-fund index has been below the 50-day EMA since the breakdown in early 2022, and now it is making that second attempt to get back above it. It is getting close to make or break time, as this common and popular technical analysis indicator flirts with another crossover.
It's not a holiday week, but it may feel like one with the 4th of July holiday falling on a Tuesday of next week, making for a possible 4-day weekend for some on Wall Street and around the country. That should make next Monday a very low volume trading day, which normally helps the bulls, unless there is some negative news released in which case the indices could be pushed around easily. And with the political and geopolitical turmoil heating up again, that's not a long shot. There's also important inflationary economic data being released on Friday with the Personal Income and PCE Prices reports.
The S&P 500 (C-fund) tried to rally early to start the week, but the bears came back to put up another fight and push the index down for the 5th time in the last 6 trading days. The chart remains in an uptrend, but for now it may be on a short-term move to the bottom of that blue parallel trading channel. If that's the case, how it reacts down there will be telling as far as whether the stocks market remains in the clear, or if all of the 2022 and early 2023 bearishness makes its way back into the market after investors had gotten more and bullish in recent months. 4225 looks like a key line in the sand if the bottom of the channel is tested and fails, but we're getting ahead of ourselves.
The EFA (I-fund) was up slightly yesterday but it didn't even make a dent in Friday's big open gap. The dollar was down slightly, and that still has some room on the downside to fill its open gap, but the recent changes in trend on these charts are getting more serious.
BND (Bonds / F-fund) is showing mixed messages with two bull flags (blue and green), and one bear flag (red). I'm still focused on its ability to hang round those two moving averages, the 50 and 200-day EMAs. Yesterday's modest gain pushed it above the 50-day EMA again, and right on the 200-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 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.
