Stocks opened higher after some strong economic data was released, and the bears basically stepped aside and let the bulls have their way. There was very little push back, which is a little surprising given the recent negative reversal days we've seen over the last week. But stocks don't go down everyday and perhaps this was just an oversold relief rally? That said, the larger trend has been positive and perhaps the bulls are taking over again. Small caps and the Transports had big days, while yields moved higher on the strong economic data, pushing bonds and the F-fund lower.
[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]
Housing data keeps coming in stronger than expected, as did consumer confidence, so what's all this talk about recession? This triggered a rally yesterday, but a short-term oversold rally for now, and the strong data also sent bond yields higher pushing bond prices (F-fund) toward the bottom of their recent trading range. It looks like a bearish flag, but the longer this knocks on that resistance door, the more likely that door may open. I suppose the same could be said about that bottom of that flag?
This strong economic data sounds great, right? The labor market seems as firm as ever, housing is strong, large cap stocks are near recent highs, etc. It has to be good, right? Well, not if you are Jerome Powell and the Federal reserve trying to fight inflation. This data is fodder for those two extra rate hikes that the Fed keeps threatening. Right now the market is pricing in a 77% chance of a 25 basis point (0.25%) rate hike at their July meeting. That's up from 52% a month ago.
The dollar was down yesterday, and as I often explain, a weaker dollar helps prices move up, stocks included, and a strong dollar can be an anchor. Looking at this chart however, it looks like the UUP dollar ETC pulled back just enough to fill in an open gap below and successfully test the 50-day EMA. Look for a possible comeback in the dollar today - based solely on this chart and not economics.
The S&P 500 (C-fund) rallied over 1% on the day, so it found support at the 20-day EMA (not shown but currently 4320), but I've been watching the PMO indicator, and at the risk of sounding "perma-beary", getting an oversold bounce after a PMO crossover is typical so I think this has a little more to prove. Seasonality may be strong enough to trump this, and the prior crossover bounce only led to a few down days, but there is a possible set up for a little downside trap to scare the weaker bulls out again. I'll probably be looking to get more bullish if this pulls back to 4230 - 4290, but in the interim I think it could get a little tricky and more volatile around the holiday.
I can't end this without mentioning the monster move in the Dow Transportation Index again. This is another good sign for the economy, but it is now up almost 2000 points since the April low so the bulls are in charge, but does it need a breather before going higher?
The price of oil, on the other hand, dropped sharply yesterday and is near multi-month lows, so perhaps the oil traders aren't as convinced about a pick up in economic activity since we are entering the summer driving season when oil prices tend to go up.
DWCPF (S-fund) had a big day although the glass half empty analysis might say that this was an oversold bounce after the PMO rolled over and hit its moving average - something we have seen before and triggered brief rallies before another push lower in the index. That may not be the case here, but if the dollar rebounds today and this rolls over by the end of the week, I wouldn't be overly surprised. I don't hate the action, and I do own some S-fund, but I am debating whether this rally need to be sold soon.
The EFA (I-fund) had a nice day but again, an open gap here, and on the dollar chart, needed - or was liable - to be filled as gaps tend to do, no matter what happens next. The UUP chart below is the same as the one up top, but am reiterating the fact that it filled an open gap on the downside, then bounced off the 50-day EMA. If that holds, stocks, and particularly the I-fund, may have some headwinds ahead.
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.
[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]
Housing data keeps coming in stronger than expected, as did consumer confidence, so what's all this talk about recession? This triggered a rally yesterday, but a short-term oversold rally for now, and the strong data also sent bond yields higher pushing bond prices (F-fund) toward the bottom of their recent trading range. It looks like a bearish flag, but the longer this knocks on that resistance door, the more likely that door may open. I suppose the same could be said about that bottom of that flag?
This strong economic data sounds great, right? The labor market seems as firm as ever, housing is strong, large cap stocks are near recent highs, etc. It has to be good, right? Well, not if you are Jerome Powell and the Federal reserve trying to fight inflation. This data is fodder for those two extra rate hikes that the Fed keeps threatening. Right now the market is pricing in a 77% chance of a 25 basis point (0.25%) rate hike at their July meeting. That's up from 52% a month ago.
The dollar was down yesterday, and as I often explain, a weaker dollar helps prices move up, stocks included, and a strong dollar can be an anchor. Looking at this chart however, it looks like the UUP dollar ETC pulled back just enough to fill in an open gap below and successfully test the 50-day EMA. Look for a possible comeback in the dollar today - based solely on this chart and not economics.
The S&P 500 (C-fund) rallied over 1% on the day, so it found support at the 20-day EMA (not shown but currently 4320), but I've been watching the PMO indicator, and at the risk of sounding "perma-beary", getting an oversold bounce after a PMO crossover is typical so I think this has a little more to prove. Seasonality may be strong enough to trump this, and the prior crossover bounce only led to a few down days, but there is a possible set up for a little downside trap to scare the weaker bulls out again. I'll probably be looking to get more bullish if this pulls back to 4230 - 4290, but in the interim I think it could get a little tricky and more volatile around the holiday.
I can't end this without mentioning the monster move in the Dow Transportation Index again. This is another good sign for the economy, but it is now up almost 2000 points since the April low so the bulls are in charge, but does it need a breather before going higher?
The price of oil, on the other hand, dropped sharply yesterday and is near multi-month lows, so perhaps the oil traders aren't as convinced about a pick up in economic activity since we are entering the summer driving season when oil prices tend to go up.
DWCPF (S-fund) had a big day although the glass half empty analysis might say that this was an oversold bounce after the PMO rolled over and hit its moving average - something we have seen before and triggered brief rallies before another push lower in the index. That may not be the case here, but if the dollar rebounds today and this rolls over by the end of the week, I wouldn't be overly surprised. I don't hate the action, and I do own some S-fund, but I am debating whether this rally need to be sold soon.
The EFA (I-fund) had a nice day but again, an open gap here, and on the dollar chart, needed - or was liable - to be filled as gaps tend to do, no matter what happens next. The UUP chart below is the same as the one up top, but am reiterating the fact that it filled an open gap on the downside, then bounced off the 50-day EMA. If that holds, stocks, and particularly the I-fund, may have some headwinds ahead.
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.
