Stocks opened flat on Tuesday although there was a tentative attitude heading into yesterday after Monday's negative reversal day and Powell's imminent meeting with congress. Powell didn't disappoint those looking for him to create some volatility, but he did disappoint the bulls as stocks sold off with losses deep into the 1% plus range. The Dow fell 575-points and bond yields were mixed with shorter term yields rising and widening the yield curve.
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Whether the Fed is helping or hurting your investment account, it's a little disconcerting that one person can have this kind of impact on financial markets. The Powell effect was swift once his testimony started in front of congress as he says interest rates may be going higher, and faster than they originally thought.
In actuality, Powell hasn't changed his tune much as he has been talking the hawkish talk for months. The stock market was shrugging off that Fed talk for whatever reason as stocks rallied off the October lows and into late January. Since then, something changed.
The turning point was that "strange" jobs report which nobody wanted to believe, but the market did respond. If you recall we supposedly had 517,000 new jobs created in January, which was reported in the first week of February. That mocked the Fed who has been going after the jobs market to slow down the economy, but that strong data told they Fed that they had to keep pushing rates higher, and yesterday he reiterated that.
This is the 2-year Treasury Yield which closed above 5% for the first time yesterday. The Fed tends to follow this, so 5% is likely the next stop for the Fed Funds Rate, but they want to go even higher. This chart is a day old because it doesn't get updated right away for some reason. The yield did hit 5%. Below that, you can see what higher rates and yields have been doing to the stock market since that jobs report.
Of course on Friday we will get the February jobs report, and we have to wonder if that 500K can possibly be repeated, if it will come inline with the 200,000+ jobs estimate, or if it, and prior reports, will be revised to more "normal" numbers? If that happens, we could see a rally in stocks. If we see 300K plus jobs again, I'd stick a fork in the stock market.
The yield on the 10-year was actually slightly lower yesterday after it rallied off the early lows after the Fed's testimony. It is now testing the resistance of the bottom of the F-flag after falling below it on Monday.
The dollar skyrocketed so that chop above and below the 200-day moving average resumed. It did close at a double dose of resistance. With both the dollar and the 10-year yield up against resistance, my guess is that today will make or break a few things. We could gap up above those resistance lines, or the Fed could back off from his extreme hawkishness during today's testimony and reverse things again - down for yields and the dollar, and up for stocks.
This market leading Dow Transportation Index has pulled back sharply off its highs but it is now testing a plethora of support. We are seeing this kind of a set up on many charts as they approach make or break areas.
Again, the Fed resumes his testimony today and then it's off to Friday's jobs report, then next week's CPI reports. It should stay wild.
The S&P 500 (C-fund) was down sharply yesterday and the optimist in me sees that it was a tidy decline yesterday that filled that small open gap near 3990. The pessimist in me sees a rally reverse down toward the previous lows after failing at the overhead resistance. We'll just have to see if the bulls have any interest in buying this short-term oversold market. This is the place that they would do it, if they have the fortitude.
The DWCPF (S-fund) was down but held up a little better as the support from the 50 and 200-day EMAs held, and the large bull flag continues to grow after failing to breakout on the recent test of resistance.
The EFA (I-fund) was victim of the selling in US stocks, plus a big rally in the dollar. It did hold within its bullish looking flag pattern and above the 50-day EMA. Meanwhile the dollar is up against that double dose of resistance.
BND (bonds / F-fund) was off a little despite a small pullback in the 10-year yield yesterday. The head and shoulders pattern is still in place, and a right shoulder in that head and shoulders pattern still has a chance to form.
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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Whether the Fed is helping or hurting your investment account, it's a little disconcerting that one person can have this kind of impact on financial markets. The Powell effect was swift once his testimony started in front of congress as he says interest rates may be going higher, and faster than they originally thought.
In actuality, Powell hasn't changed his tune much as he has been talking the hawkish talk for months. The stock market was shrugging off that Fed talk for whatever reason as stocks rallied off the October lows and into late January. Since then, something changed.
The turning point was that "strange" jobs report which nobody wanted to believe, but the market did respond. If you recall we supposedly had 517,000 new jobs created in January, which was reported in the first week of February. That mocked the Fed who has been going after the jobs market to slow down the economy, but that strong data told they Fed that they had to keep pushing rates higher, and yesterday he reiterated that.
This is the 2-year Treasury Yield which closed above 5% for the first time yesterday. The Fed tends to follow this, so 5% is likely the next stop for the Fed Funds Rate, but they want to go even higher. This chart is a day old because it doesn't get updated right away for some reason. The yield did hit 5%. Below that, you can see what higher rates and yields have been doing to the stock market since that jobs report.
Of course on Friday we will get the February jobs report, and we have to wonder if that 500K can possibly be repeated, if it will come inline with the 200,000+ jobs estimate, or if it, and prior reports, will be revised to more "normal" numbers? If that happens, we could see a rally in stocks. If we see 300K plus jobs again, I'd stick a fork in the stock market.
The yield on the 10-year was actually slightly lower yesterday after it rallied off the early lows after the Fed's testimony. It is now testing the resistance of the bottom of the F-flag after falling below it on Monday.
The dollar skyrocketed so that chop above and below the 200-day moving average resumed. It did close at a double dose of resistance. With both the dollar and the 10-year yield up against resistance, my guess is that today will make or break a few things. We could gap up above those resistance lines, or the Fed could back off from his extreme hawkishness during today's testimony and reverse things again - down for yields and the dollar, and up for stocks.
This market leading Dow Transportation Index has pulled back sharply off its highs but it is now testing a plethora of support. We are seeing this kind of a set up on many charts as they approach make or break areas.
Again, the Fed resumes his testimony today and then it's off to Friday's jobs report, then next week's CPI reports. It should stay wild.
The S&P 500 (C-fund) was down sharply yesterday and the optimist in me sees that it was a tidy decline yesterday that filled that small open gap near 3990. The pessimist in me sees a rally reverse down toward the previous lows after failing at the overhead resistance. We'll just have to see if the bulls have any interest in buying this short-term oversold market. This is the place that they would do it, if they have the fortitude.
The DWCPF (S-fund) was down but held up a little better as the support from the 50 and 200-day EMAs held, and the large bull flag continues to grow after failing to breakout on the recent test of resistance.
The EFA (I-fund) was victim of the selling in US stocks, plus a big rally in the dollar. It did hold within its bullish looking flag pattern and above the 50-day EMA. Meanwhile the dollar is up against that double dose of resistance.
BND (bonds / F-fund) was off a little despite a small pullback in the 10-year yield yesterday. The head and shoulders pattern is still in place, and a right shoulder in that head and shoulders pattern still has a chance to form.
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.
