We saw some dip buying early on Tuesday after a slightly negative open, but the Fed stepped in and reminded investors and the market that they are still planning to what they have been telling us that they are going to do. Bond Yields moved up sharply on the Fed hawkish comment, and stocks rolled over. The Dow lost 281-points and small caps, which are very interest rate sensitive, lost over 2% on the day. Oil and the metals were up, then down, as the dollar continued to rally, boosted by that Fed comment.
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That may sound like a good thing - no longer inverted - but the damage has already been done. The process of getting to the inversion was the signal of the increased potential for recession.
I posted these charts last week showing the prior 2/10 yield curve inversion, and you'll see some were brief, but all ended with an eventual major decline in stocks.
The small caps of the Russell 2000 and the Transportation Index both lost over 2% on the day as the two economically sensitive indices reacted to the Fed's hawkish comments. Both closed below key moving averages.
The dollar loved the news and that strength kept commodity prices down like gold, silver and oil, even after oil was over $104 in early trading. It is now closer to $101. This strength in the dollar will also put more pressure on the I-fund.
It's tough to get comfortable in this market because we know how much trouble is coming down the pike. The question everyone is asking is whether all of the bad news is already priced in, and after yesterday's hawkish comments from the Fed, I'd say probably not at this point.
The S&P 500 (C-fund) was up in early trading on Tuesday but it turned into a Turnaround Tuesday after the hawkish Fed Governor did a number on the stock market. It is starting to look like the highs of last week were a fake out and perhaps we are ready to feel the resistance at the top of the recent trading range. There are a few reasons to be optimistic as the current short term formation could be a bull flag forming, and it is holding above that key orange moving average, but there's a lot less room for error down in this area. The PMO momentum indicators looks like it wants to rollover.
DWCPF (S-fund / small caps) got slammed and it closed back below its 50-day EMA - something that has been tentatively holding onto for about three weeks. Once again that open gap has to keep your attention because they are always potential pullback targets.
The EFA (I-fund) is also straddling that 50-day EMA and is back below the longer term resistance line. There's work to be done here, and the large open gap is an obvious reason to be worried about being in this fund.
BND (Bonds / F-fund) failed to hold Monday's mini breakout as the Fed talked of aggressively reducing their balance sheet, which is nothing new but reiterates the inevitable, and this is why bonds continue to trend lower.
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 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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Fed Governor Lael Brainard said the central bank could start reducing its balance sheet as soon as May and would be doing so at “a rapid pace.” That sent yields higher and the 10 year yield hit its highest level in thee years. The 2-year yield also went up, but the yield curve is no longer inverted.
That may sound like a good thing - no longer inverted - but the damage has already been done. The process of getting to the inversion was the signal of the increased potential for recession.
I posted these charts last week showing the prior 2/10 yield curve inversion, and you'll see some were brief, but all ended with an eventual major decline in stocks.
The small caps of the Russell 2000 and the Transportation Index both lost over 2% on the day as the two economically sensitive indices reacted to the Fed's hawkish comments. Both closed below key moving averages.
The dollar loved the news and that strength kept commodity prices down like gold, silver and oil, even after oil was over $104 in early trading. It is now closer to $101. This strength in the dollar will also put more pressure on the I-fund.
It's tough to get comfortable in this market because we know how much trouble is coming down the pike. The question everyone is asking is whether all of the bad news is already priced in, and after yesterday's hawkish comments from the Fed, I'd say probably not at this point.
The S&P 500 (C-fund) was up in early trading on Tuesday but it turned into a Turnaround Tuesday after the hawkish Fed Governor did a number on the stock market. It is starting to look like the highs of last week were a fake out and perhaps we are ready to feel the resistance at the top of the recent trading range. There are a few reasons to be optimistic as the current short term formation could be a bull flag forming, and it is holding above that key orange moving average, but there's a lot less room for error down in this area. The PMO momentum indicators looks like it wants to rollover.
DWCPF (S-fund / small caps) got slammed and it closed back below its 50-day EMA - something that has been tentatively holding onto for about three weeks. Once again that open gap has to keep your attention because they are always potential pullback targets.
The EFA (I-fund) is also straddling that 50-day EMA and is back below the longer term resistance line. There's work to be done here, and the large open gap is an obvious reason to be worried about being in this fund.
BND (Bonds / F-fund) failed to hold Monday's mini breakout as the Fed talked of aggressively reducing their balance sheet, which is nothing new but reiterates the inevitable, and this is why bonds continue to trend lower.
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 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.
