Stocks were flat heading into yesterday's FOMC meeting and the Fed not only threw the market a bone, it outright pivoted. The Dow jumped over 500-points on the day and many of the major indies are now flirting with their old 2021 highs. Bonds soared as yields plummeted, and this was on top of the large decline we have seen already in yields. On October 23 the 10-year yield was 5%. Now it's flirting with falling below 4%. That's a tremendous move in that short amount of time. The stock market is reacting to this new dovish outlook from Powell.
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The question is, after the monster 6 week rally that we had leading into yesterday's Fed triggered rally, how much of this news has already been priced in because the data suggests that market had already priced in more rate cuts than the Fed suggested yesterday, and the action was basically an extension of what we have been hearing for the last 6 - 8 weeks, so was it an exclamation point on the rally, or just a comma with more to come?
Back in the early 20th century, economist John Maynard Keynes famously said, "The market can remain irrational longer than you can remain solvent."
We are witnessing that again, and it relates to markets going up, and down, and in the current case it is obviously up. Not that stocks haven't been a little volatile this year, but the last 6 weeks or so have seemed impossibly resilient, but it happens.
I have been very wrong after selling early on in the rally in November, and then more again earlier this month, so I am getting run over by this rally, and it's leaving a mark. At some point things will turn, but will it be before the holidays or into 2024?
I grabbed chart this off the television because I had never seen this data anywhere else; It shows what the S&P 500 did after prior Fed rate hike pauses. The blue line is what happened when we didn't get a recession. The orange line shows what happened if there was a recession involved. Big difference. The yellow line is where we are now.
I have been pounding the table on the fact that the 2-year / 10-year Treasury Yield Curve is still very much inverted. It's been that way for about a year and a half but so far no recession. Historically it almost always led to a recession, so unless "it's different this time"...
I could dissect this every which way, but right now momentum, and cash on the sidelines are feeding the rally, not so much fundamentals - yet.
Let's see what yesterday's big moves did to the charts.
The 10-year Treasury Yield crashed right through the 200-day EMA after that recent brief two-day rally.
Longer term 10-year chart shows that the rising support line off the 2021 fall low is being tested now and it even closed just slightly below it yesterday as panic buying in bonds ensued after the Fed's pause.
The dollar also tanked but it conveniently hit a low and held at the November open gap.
This two-year chart of UUP hasn't touched its support line yet so there may be some more room on the downside without breaking the long-term upward trend.
The index charts are all at or approaching some tough resistance areas. The S&P 500 has a little room to run before getting to the January 2022 high, and it wouldn't be unusual for this to make its way up there that extra 3% before rolling over but is the risk / reward of that extra 3% worth it if it does finally pull back? The open gaps are now nearly 10% below the current levels.
The DWCPF, or S-fund, is now at the top its, what do we want to call that -- a bear flag? It looks like one, but is it too big to work like a smaller bear flag? Even if it isn't a bear flag, there is a lot of room down to support in that channel if that resistance doesn't give way.
The Nasdaq 100, which packs all of those large tech companies including the Magnificent 7, is tagging the late 2021 high, and the all time high from a few weeks before that. I also pointed out in the blue boxes, the chart pattern of that 2021 peak compared to the current pattern.
A closer look shows just how similar the 2021 peak is to the current peak. Of course the economic situation was a lot different at the end of 2021 than it is now, but of course the herd was bullish at the end of 2021 before the 2022 bear market started.
And here is what happened after that 2021 peak when that first little pullback turned into the outright bear market.
I didn't want to chase stocks when the S&P 500 was touching 4600, and here it is quickly at 4700. Trying to stay patient, but that may or may not be right for you.
The plummet in the dollar, thanks to the Fed, helped the EFA (I-fund) test the previous highs, like many of the other charts, and the question is whether we'll see a double top pullback during the pre-holiday season? That old July gap finally got filled yesterday as well.
BND (Bonds / F-fund) shot up and every time I think it can't go any further without some kind of a pullback first, well, you see. However, like the stock index charts, here it is at another double top area.
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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The question is, after the monster 6 week rally that we had leading into yesterday's Fed triggered rally, how much of this news has already been priced in because the data suggests that market had already priced in more rate cuts than the Fed suggested yesterday, and the action was basically an extension of what we have been hearing for the last 6 - 8 weeks, so was it an exclamation point on the rally, or just a comma with more to come?
Back in the early 20th century, economist John Maynard Keynes famously said, "The market can remain irrational longer than you can remain solvent."
We are witnessing that again, and it relates to markets going up, and down, and in the current case it is obviously up. Not that stocks haven't been a little volatile this year, but the last 6 weeks or so have seemed impossibly resilient, but it happens.
I have been very wrong after selling early on in the rally in November, and then more again earlier this month, so I am getting run over by this rally, and it's leaving a mark. At some point things will turn, but will it be before the holidays or into 2024?
I grabbed chart this off the television because I had never seen this data anywhere else; It shows what the S&P 500 did after prior Fed rate hike pauses. The blue line is what happened when we didn't get a recession. The orange line shows what happened if there was a recession involved. Big difference. The yellow line is where we are now.
I have been pounding the table on the fact that the 2-year / 10-year Treasury Yield Curve is still very much inverted. It's been that way for about a year and a half but so far no recession. Historically it almost always led to a recession, so unless "it's different this time"...
I could dissect this every which way, but right now momentum, and cash on the sidelines are feeding the rally, not so much fundamentals - yet.
Let's see what yesterday's big moves did to the charts.
The 10-year Treasury Yield crashed right through the 200-day EMA after that recent brief two-day rally.
Longer term 10-year chart shows that the rising support line off the 2021 fall low is being tested now and it even closed just slightly below it yesterday as panic buying in bonds ensued after the Fed's pause.
The dollar also tanked but it conveniently hit a low and held at the November open gap.
This two-year chart of UUP hasn't touched its support line yet so there may be some more room on the downside without breaking the long-term upward trend.
The index charts are all at or approaching some tough resistance areas. The S&P 500 has a little room to run before getting to the January 2022 high, and it wouldn't be unusual for this to make its way up there that extra 3% before rolling over but is the risk / reward of that extra 3% worth it if it does finally pull back? The open gaps are now nearly 10% below the current levels.
The DWCPF, or S-fund, is now at the top its, what do we want to call that -- a bear flag? It looks like one, but is it too big to work like a smaller bear flag? Even if it isn't a bear flag, there is a lot of room down to support in that channel if that resistance doesn't give way.
The Nasdaq 100, which packs all of those large tech companies including the Magnificent 7, is tagging the late 2021 high, and the all time high from a few weeks before that. I also pointed out in the blue boxes, the chart pattern of that 2021 peak compared to the current pattern.
A closer look shows just how similar the 2021 peak is to the current peak. Of course the economic situation was a lot different at the end of 2021 than it is now, but of course the herd was bullish at the end of 2021 before the 2022 bear market started.
And here is what happened after that 2021 peak when that first little pullback turned into the outright bear market.
I didn't want to chase stocks when the S&P 500 was touching 4600, and here it is quickly at 4700. Trying to stay patient, but that may or may not be right for you.
The plummet in the dollar, thanks to the Fed, helped the EFA (I-fund) test the previous highs, like many of the other charts, and the question is whether we'll see a double top pullback during the pre-holiday season? That old July gap finally got filled yesterday as well.
BND (Bonds / F-fund) shot up and every time I think it can't go any further without some kind of a pullback first, well, you see. However, like the stock index charts, here it is at another double top area.
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.
