After a slow start to the trading day on Wednesday, the Fed's testimony to congress brought out the more dovish side of Jerome Powell, and the bulls ran with it. The rally was fairly broad although once again the S-fund and the equal Weighted S&P 500 lagged the large caps by a modest amount, but there wasn't much complaining. Was yesterday a trap, or will the top callers continue to be frustrated?
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The rally yesterday puts a lot of pressure on this morning's CPI number as the Fed Chair Jerome Powell basically said if the inflation data continues to come in benign, a rate cut in September is all but assured. So what happens to yesterday's 1% rally if the CPI data is hotter than expected? There could be a big crowd headed for the exit. And what happens if it just comes inline with estimates? Well, that could set up a sell the news reaction, especially for the recent high flyers - some of which have been going parabolic in recent weeks and months.
For Apple it has been a 42% rally since the low in April. Nvidia is up 78% since the April low, and an astounding 172% for the year.
And the latest 50% surge in Tesla, and 90% move off the April lows, puts it back in positive territory for the year.
Here's the concerning part. Often the biggest drops in the stock market come off of new market highs, especially after a particularly sharp move higher.
Take a look at the last three major bear markets and the action just before the peaks. The actual high in in the S&P 500 in 2000 before the dot com bear market began was made right after a 17% rally during a 3+ week period. In 2007 the S&P 500 made a new breakout high in October, but that was short lived and stocks started to move down slowly, but then dramatically, until early 2009. Can you imagine how bullish investor sentiment was in October of 2007 at those all time highs?
And then in 2020 the S&P 500 had just blasted through to new highs in February and by March we had dramatic losses of over 20% in the index.
I'm not calling for a crash or a bear market, but I am saying that new highs and bullish action only tells us what has already happened, and you have to stay on your toes, pay attention, and be nimble just in case. The demographics of TSP Talk readers leans toward those getting closer to retirement or already retired, and if you are that age, you probably remember those situations because if you had money in the stocks market back then, your TSP account probably took quite a haircut.
As for me, I have been bullish but I have also shied away from the extremes of the large caps so I haven't been keeping up with the S&P 500. But where my money is today could be different next week for many different reasons (which I usually talk about in the daily TSP Talk Plus reports.) I'm staying nimble.
Yields came down yesterday after Jerome Powell spoke as the market took his dovish rhetoric as confirmation of a rate cut in September, but ...
... that could change after this morning's CPI report which could make or break what we saw yesterday. We will get the PPI wholesale prices report on Friday, and that matters as well. Was yesterday's rally a trap to suck people in before the trap door opens after the CPI?
Seasonality remains quite bullish until the end of the week. Also earnings season has gotten underway but most of the big names don't start reporting until the end of the month.
The S&P 500 (C-fund) rallied big after the Fed testimony on Wednesday. Breadth was very positive but there was no spike in trading volume so it wasn't like money managers were pouring into the market. However, they may already be almost fully invested as they try to keep their returns somewhere close the return of the S&P 500, which has been almost impossible unless they've stayed super aggressive the whole time. The PMO indicator had another successful touch and go fake out crossover, so momentum is not showing signs of a divergence anymore.
DWCPF (S-fund) finally had a decent day, nearly keeping up with the grown up indices, but it finds itself coiled up in an apex that is going to have to give one way of the other. The CPI may open the trap door or finally break the small caps to the upside of this long, frustrating funk.
The EFA (I-fund) is testing recent highs and there's only been one close above yesterday's closing price. This is a bullish sign, and the inverted head and shoulders pattern is also optimistic, but there's still room for a right shoulder to form if it doesn't break out soon.
BND (bonds / F-fund) is also flirting with a breakout, and the blue bull flag could be the right shoulder of an inverted head and shoulders pattern as well. But those open gap gaps below could spoil the fun.
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
Questions, comments, or issues with today's commentary? We can discuss it in the Forum.
Daily Market Commentary Archives
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.
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 rally yesterday puts a lot of pressure on this morning's CPI number as the Fed Chair Jerome Powell basically said if the inflation data continues to come in benign, a rate cut in September is all but assured. So what happens to yesterday's 1% rally if the CPI data is hotter than expected? There could be a big crowd headed for the exit. And what happens if it just comes inline with estimates? Well, that could set up a sell the news reaction, especially for the recent high flyers - some of which have been going parabolic in recent weeks and months.
For Apple it has been a 42% rally since the low in April. Nvidia is up 78% since the April low, and an astounding 172% for the year.
And the latest 50% surge in Tesla, and 90% move off the April lows, puts it back in positive territory for the year.
Here's the concerning part. Often the biggest drops in the stock market come off of new market highs, especially after a particularly sharp move higher.
Take a look at the last three major bear markets and the action just before the peaks. The actual high in in the S&P 500 in 2000 before the dot com bear market began was made right after a 17% rally during a 3+ week period. In 2007 the S&P 500 made a new breakout high in October, but that was short lived and stocks started to move down slowly, but then dramatically, until early 2009. Can you imagine how bullish investor sentiment was in October of 2007 at those all time highs?
And then in 2020 the S&P 500 had just blasted through to new highs in February and by March we had dramatic losses of over 20% in the index.
I'm not calling for a crash or a bear market, but I am saying that new highs and bullish action only tells us what has already happened, and you have to stay on your toes, pay attention, and be nimble just in case. The demographics of TSP Talk readers leans toward those getting closer to retirement or already retired, and if you are that age, you probably remember those situations because if you had money in the stocks market back then, your TSP account probably took quite a haircut.
As for me, I have been bullish but I have also shied away from the extremes of the large caps so I haven't been keeping up with the S&P 500. But where my money is today could be different next week for many different reasons (which I usually talk about in the daily TSP Talk Plus reports.) I'm staying nimble.
Yields came down yesterday after Jerome Powell spoke as the market took his dovish rhetoric as confirmation of a rate cut in September, but ...
... that could change after this morning's CPI report which could make or break what we saw yesterday. We will get the PPI wholesale prices report on Friday, and that matters as well. Was yesterday's rally a trap to suck people in before the trap door opens after the CPI?
Seasonality remains quite bullish until the end of the week. Also earnings season has gotten underway but most of the big names don't start reporting until the end of the month.
The S&P 500 (C-fund) rallied big after the Fed testimony on Wednesday. Breadth was very positive but there was no spike in trading volume so it wasn't like money managers were pouring into the market. However, they may already be almost fully invested as they try to keep their returns somewhere close the return of the S&P 500, which has been almost impossible unless they've stayed super aggressive the whole time. The PMO indicator had another successful touch and go fake out crossover, so momentum is not showing signs of a divergence anymore.
DWCPF (S-fund) finally had a decent day, nearly keeping up with the grown up indices, but it finds itself coiled up in an apex that is going to have to give one way of the other. The CPI may open the trap door or finally break the small caps to the upside of this long, frustrating funk.
The EFA (I-fund) is testing recent highs and there's only been one close above yesterday's closing price. This is a bullish sign, and the inverted head and shoulders pattern is also optimistic, but there's still room for a right shoulder to form if it doesn't break out soon.
BND (bonds / F-fund) is also flirting with a breakout, and the blue bull flag could be the right shoulder of an inverted head and shoulders pattern as well. But those open gap gaps below could spoil the fun.
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
Questions, comments, or issues with today's commentary? We can discuss it in the Forum.
Daily Market Commentary Archives
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.
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.
