Stocks applauded both Apple's earnings and the jobs report on Friday as the indices soared and turned what looked like a possible poor week for stocks, into a positive one. The weaker than expected jobs report opened the door to a possible interest rate cut from the Fed in June, where before that it was looking unlikely. Bonds also rallied as yields fell sharply on the cool data.
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We got the April jobs report and it conveniently came in much weaker than expected, 175,000 jobs gained vs. estimates closer to 250,000. In recent months these reports have been quite strong and easily beating estimates, while they were revising prior reports lower. It has been going on for a while. Friday the market needed a weak report, and it got it. Not so coincidentally they revised the prior month's report higher, although they did lower the February numbers.
Why did stocks rally on a weak jobs report? That data pushed yields and the dollar much lower and that nudges the Fed closer to cutting rates maybe sooner than later.
The 10-year Treasury Yield fell sharply last week and that has been a catalyst for the stock market as the threat of a 5% yield was putting pressure on the market. The pullback in $TNX found a little support at Friday's lows where the 50-day EMA and the rising support line meet, so we'll just have to see if that can continue to hold or if yields are peaking or if lower yields are coming.
The dollar also fell sharply on Friday so the bull flag that I had been highlighting did not break to the upside as they tend to do, but instead if fell below some rising support. Like falling yields, right now this was a bullish development for stocks. There is support near 28.50.
So that's how the market reacted to last week's more dovish Federal Reserve, and a jobs report that helps the Fed stay more dovish, although they probably already knew these numbers during their meeting last week, before they were released to the public. But what about the charts? How much can the stock market rally on yields falling, if yields are falling because of weaker economic data?
We've had some issues with the charts so did last week's bullish action help? Maybe.
Once again here is the summer of 2023 chart that I have been using as a comparison for the current action. There were some improvements but one thing to watch is the bottom of that Negative Outside Reversal (NOR) day, which is close to where the relief rally ran into trouble in late last August and into September.
Friday's rally pushed the S&P 500 up to the 50-day simple average, some possible resistance, but it is also coming close to the bottom of this year's Negative Outside Reversal (NOR) day, where that 2023 rally went to die. Watch the 5150 area.
The IWM small caps chart above closed closer to the lows of the day than the high, despite gaining 1%. That weak close pushed it back into what I have been calling a bear flag so it may only be matter of time before we find out if Friday's emotional jobs report reaction was enough to break that bear flag, or just postpone it's inevitable bearish outcome. It did fill a gap near 204 at the highs on Friday, although technically the gap may go all the way up to that April 9th close near 206.
The tech heavy Nasdaq may be performing the best and it looks it has more of a "V" bottom look now than a bear flag. We know the market in general will likely move in the same direction as a leading Nasdaq, although not always to the same degree, so it will be important for big tech to keep this rally going. There is a large open gap below 15,900 which is a potential downside target in the short-term if we see any backing and filling of the two-day rally.
The S&P 500 weekly chart shows a healthy two-week bounce off the 20-week moving average after the three week pullback. I'd say that's a no-brainer that the rally is about to resume, except that 2023 comparison did the same thing before it rolled over again.
The weekly chart of the DWCPF (S-fund) looks a little better in that the old resistance line has been holding as support. 1900 looks to be the make or break level here and it's currently above 2000.
The market leading Dow Transportation Index gapped up with the rest of the market but it slammed into that 200-day average at the highs on Friday. I don't know if that holds but it is certainly something to consider. That purple 50-day average is closing to falling below the orange 200-day average, and that is called a death cross, should it happen.
More good news for the stock market is coming from the price of oil which has been falling sharply in recent weeks. The question is, why is it falling? If the economy is slowing, as the jobs report may be indicating, then oil may continue lower. That in itself helps the inflation picture, but it is testing some support right now.
I like what I saw last week as the Fed's outlook and the jobs report may be indicating a turning point from higher interest rates, but that was one report and we have the CPI and PPI next week that could confirm or contradict the jobs report. The market may have some momentum but it could also move into some kind of limbo between now and those inflation reports next week.
The problem is that the S&P 500 rallied over 25% for 5-months as the market was starting to price in the end of inflation and what was it, 6 or 7 anticipated interest rate cuts from the Fed as we came into the New Year? Now we can't get them to commit to 1 rate cut and it took a weak jobs report to get the market excited about lower rates again. Was the 3-week ,6% pullback enough, or is there more backing and filling to go?
The futures opened moderately higher on Sunday evening, but you can't always trust Monday morning gaps from either direction.
The S&P 500 (C-fund) gapped up and I did a lot of analysis above on this as I continue to compare it to the summer of 2023. As bullish as last week's rally was on Thursday and Friday, the trading volume has been anything but impressive. Does that mean institution investors are not jumping in? Also, the PMO indicator has barely moved off its lows despite the big rally. We got the oversold rally, now that indicator has to make its move above its average, which are both still below 0.0. I look at this as a negative divergence, but it can change quickly.
DWCPF (S-fund) had a good day on Friday but the odd negative reversal formation leaves some questions. The bear flag remains intact technically, since it closed within it after failing to hold anywhere near Friday's highs. Other similar negative reversals have led to losses going forward but those others indicated didn't occur on days where the indices had a big gain.
The EFA (I-fund) rallied and filled its open gap as it continues to fade the movement of the dollar, which was down sharply on Friday. There were certainly some improvements made on the EFA chart but there's more work to be done as resistance looms overhead.
BND (bonds / F-fund) rallied nicely and this may be signaling a bottom for bonds but it could also just be filling in open gaps while remaining in a downtrend. Why yields would go higher after what the jobs report told us, I don't know, but again that was just one data point and there's always another one around the corner that has to tell the same story.
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
For more info our other premium services, please go here... www.tsptalk.com/premiums.html
Daily Market Commentary Archives
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 got the April jobs report and it conveniently came in much weaker than expected, 175,000 jobs gained vs. estimates closer to 250,000. In recent months these reports have been quite strong and easily beating estimates, while they were revising prior reports lower. It has been going on for a while. Friday the market needed a weak report, and it got it. Not so coincidentally they revised the prior month's report higher, although they did lower the February numbers.
Why did stocks rally on a weak jobs report? That data pushed yields and the dollar much lower and that nudges the Fed closer to cutting rates maybe sooner than later.
The 10-year Treasury Yield fell sharply last week and that has been a catalyst for the stock market as the threat of a 5% yield was putting pressure on the market. The pullback in $TNX found a little support at Friday's lows where the 50-day EMA and the rising support line meet, so we'll just have to see if that can continue to hold or if yields are peaking or if lower yields are coming.
The dollar also fell sharply on Friday so the bull flag that I had been highlighting did not break to the upside as they tend to do, but instead if fell below some rising support. Like falling yields, right now this was a bullish development for stocks. There is support near 28.50.
So that's how the market reacted to last week's more dovish Federal Reserve, and a jobs report that helps the Fed stay more dovish, although they probably already knew these numbers during their meeting last week, before they were released to the public. But what about the charts? How much can the stock market rally on yields falling, if yields are falling because of weaker economic data?
We've had some issues with the charts so did last week's bullish action help? Maybe.
Once again here is the summer of 2023 chart that I have been using as a comparison for the current action. There were some improvements but one thing to watch is the bottom of that Negative Outside Reversal (NOR) day, which is close to where the relief rally ran into trouble in late last August and into September.
Friday's rally pushed the S&P 500 up to the 50-day simple average, some possible resistance, but it is also coming close to the bottom of this year's Negative Outside Reversal (NOR) day, where that 2023 rally went to die. Watch the 5150 area.
The IWM small caps chart above closed closer to the lows of the day than the high, despite gaining 1%. That weak close pushed it back into what I have been calling a bear flag so it may only be matter of time before we find out if Friday's emotional jobs report reaction was enough to break that bear flag, or just postpone it's inevitable bearish outcome. It did fill a gap near 204 at the highs on Friday, although technically the gap may go all the way up to that April 9th close near 206.
The tech heavy Nasdaq may be performing the best and it looks it has more of a "V" bottom look now than a bear flag. We know the market in general will likely move in the same direction as a leading Nasdaq, although not always to the same degree, so it will be important for big tech to keep this rally going. There is a large open gap below 15,900 which is a potential downside target in the short-term if we see any backing and filling of the two-day rally.
The S&P 500 weekly chart shows a healthy two-week bounce off the 20-week moving average after the three week pullback. I'd say that's a no-brainer that the rally is about to resume, except that 2023 comparison did the same thing before it rolled over again.
The weekly chart of the DWCPF (S-fund) looks a little better in that the old resistance line has been holding as support. 1900 looks to be the make or break level here and it's currently above 2000.
The market leading Dow Transportation Index gapped up with the rest of the market but it slammed into that 200-day average at the highs on Friday. I don't know if that holds but it is certainly something to consider. That purple 50-day average is closing to falling below the orange 200-day average, and that is called a death cross, should it happen.
More good news for the stock market is coming from the price of oil which has been falling sharply in recent weeks. The question is, why is it falling? If the economy is slowing, as the jobs report may be indicating, then oil may continue lower. That in itself helps the inflation picture, but it is testing some support right now.
I like what I saw last week as the Fed's outlook and the jobs report may be indicating a turning point from higher interest rates, but that was one report and we have the CPI and PPI next week that could confirm or contradict the jobs report. The market may have some momentum but it could also move into some kind of limbo between now and those inflation reports next week.
The problem is that the S&P 500 rallied over 25% for 5-months as the market was starting to price in the end of inflation and what was it, 6 or 7 anticipated interest rate cuts from the Fed as we came into the New Year? Now we can't get them to commit to 1 rate cut and it took a weak jobs report to get the market excited about lower rates again. Was the 3-week ,6% pullback enough, or is there more backing and filling to go?
The futures opened moderately higher on Sunday evening, but you can't always trust Monday morning gaps from either direction.
The S&P 500 (C-fund) gapped up and I did a lot of analysis above on this as I continue to compare it to the summer of 2023. As bullish as last week's rally was on Thursday and Friday, the trading volume has been anything but impressive. Does that mean institution investors are not jumping in? Also, the PMO indicator has barely moved off its lows despite the big rally. We got the oversold rally, now that indicator has to make its move above its average, which are both still below 0.0. I look at this as a negative divergence, but it can change quickly.
DWCPF (S-fund) had a good day on Friday but the odd negative reversal formation leaves some questions. The bear flag remains intact technically, since it closed within it after failing to hold anywhere near Friday's highs. Other similar negative reversals have led to losses going forward but those others indicated didn't occur on days where the indices had a big gain.
The EFA (I-fund) rallied and filled its open gap as it continues to fade the movement of the dollar, which was down sharply on Friday. There were certainly some improvements made on the EFA chart but there's more work to be done as resistance looms overhead.
BND (bonds / F-fund) rallied nicely and this may be signaling a bottom for bonds but it could also just be filling in open gaps while remaining in a downtrend. Why yields would go higher after what the jobs report told us, I don't know, but again that was just one data point and there's always another one around the corner that has to tell the same story.
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
For more info our other premium services, please go here... www.tsptalk.com/premiums.html
Daily Market Commentary Archives
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.
