If you didn't like what you saw during the trading day yesterday, you just had a to wait a few minutes and it probably changed. It was quite the whipsaw day as two separate Federal Reserve members gave opinions, and they didn't necessary say the same thing. Where does that leave us? Jerome Powell is the go to member and had the final say, but with the Dow was down triple digits in early trading, up triple digits in the early afternoon, down triple again a half hour later, and finally closed up triple digits, it doesn't make it easy for investors.
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The advance / decline market breadth wasn't as strong as the gains might indicate and that's mostly because the 4% gain in Microsoft pushed the Dow, S&P 500, and Nasdaq higher since it is weighted so heavily in those indices.
In the morning Fed member Neel Kashkari commented that the Fed has not made enough progress with their interest rate hikes. Stocks sold off. Fast forward to the afternoon and Fed Jerome Powell said that inflation is starting to ease. Is your head spinning yet? I suppose it is OK for them to have differing opinions, but should these people be able to go public with this conflicting information, or should we just see what they do, rather than hear what they say?
Bond yields were shooting higher yesterday so the bond market seems to have taken what Kashkari said more seriously than what Powell said. And, despite those yields rallying, for the first time in a while the stock market didn't seem to care.
You can see that the 10-year Yield was up again and is hitting resistance while the BND bond fund has fallen to support, so maybe this is about to turn around?
During weakening economic conditions, bonds tend to go up while yields move down. That has been the larger trend until the start of February after the FOMC meeting.
Another sign of of weakening conditions may be the lower energy prices as we've seen oil and natural gas move down dramatically over the last 6+ months. It could be higher supplies and not a lower demand, but it could be both as well.
Also the price of lumber has been tumbling. Remember when it was up near $1700 in 2021? It's below $500 right now.
On the other hand, copper and the Dow Transportation Index are also very economically sensitive and they have been doing well in recent months.
So no matter where you look, we are getting a lot of conflicting data, information, and reactions to various conditions. One thing we did see, and you will see this in the charts below, is that the stock index charts continue to act well and found support yesterday at important levels before rebounding. The market has been in a trading range for a long time so it's tough to get on a bullish trending approach because oscillation strategies like selling rallies and buying dips, have been working for months now.
We just have to keep watching the charts to see if this rally is setting up as a peak, or has the trend fully changed to bullish? The fundamentals certainly don't support a bullish trend change at this point because earnings, valuations, and the P/E ratio of the S&P 500 are just not looking good. At a "normal" P/E of 18 for this current level of the S&P 500 (4,164) would suggest the earnings on the S&P would be near $230. But right now they are closer to $200 to $225 which, at an 18 P/E would put the S&P at 3,600 to 4050. So if these are accurate, how much higher can the S&P go this year if it's already above year end valuations in February?
The S&P 500 (C-fund) was down early and it found support at a very nice, clean place where the December peaks met the short-term rising support line. As I keep saying, there is a ton of support on this chart which could keep stocks buoyant, but if these support areas start breaking, things could collapse quickly. The whipsaw action yesterday reminded us how quickly things can chance. As I said above, technically, the charts look good. Fundamentally, we have some reasons to be concerned about these levels.
DWCPF (S-fund) gained 1% after Monday's 1% loss. The trend is up and the volatility has been within, or above, that rising trading channel since the start of the year. The trend is your friend although the failed breakout last week could have some bearish meaning. We'll have to see if the channel continues to hold and yesterday's sell off certainly did a good job of holding at that support again.
The EFA (I-fund) rallied nicely yesterday but the high was at the old support line. That old support can turn into resistance, but that resistance is rising at the moment.
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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The advance / decline market breadth wasn't as strong as the gains might indicate and that's mostly because the 4% gain in Microsoft pushed the Dow, S&P 500, and Nasdaq higher since it is weighted so heavily in those indices.
In the morning Fed member Neel Kashkari commented that the Fed has not made enough progress with their interest rate hikes. Stocks sold off. Fast forward to the afternoon and Fed Jerome Powell said that inflation is starting to ease. Is your head spinning yet? I suppose it is OK for them to have differing opinions, but should these people be able to go public with this conflicting information, or should we just see what they do, rather than hear what they say?
Bond yields were shooting higher yesterday so the bond market seems to have taken what Kashkari said more seriously than what Powell said. And, despite those yields rallying, for the first time in a while the stock market didn't seem to care.
You can see that the 10-year Yield was up again and is hitting resistance while the BND bond fund has fallen to support, so maybe this is about to turn around?
During weakening economic conditions, bonds tend to go up while yields move down. That has been the larger trend until the start of February after the FOMC meeting.
Another sign of of weakening conditions may be the lower energy prices as we've seen oil and natural gas move down dramatically over the last 6+ months. It could be higher supplies and not a lower demand, but it could be both as well.
Also the price of lumber has been tumbling. Remember when it was up near $1700 in 2021? It's below $500 right now.
On the other hand, copper and the Dow Transportation Index are also very economically sensitive and they have been doing well in recent months.
So no matter where you look, we are getting a lot of conflicting data, information, and reactions to various conditions. One thing we did see, and you will see this in the charts below, is that the stock index charts continue to act well and found support yesterday at important levels before rebounding. The market has been in a trading range for a long time so it's tough to get on a bullish trending approach because oscillation strategies like selling rallies and buying dips, have been working for months now.
We just have to keep watching the charts to see if this rally is setting up as a peak, or has the trend fully changed to bullish? The fundamentals certainly don't support a bullish trend change at this point because earnings, valuations, and the P/E ratio of the S&P 500 are just not looking good. At a "normal" P/E of 18 for this current level of the S&P 500 (4,164) would suggest the earnings on the S&P would be near $230. But right now they are closer to $200 to $225 which, at an 18 P/E would put the S&P at 3,600 to 4050. So if these are accurate, how much higher can the S&P go this year if it's already above year end valuations in February?
The S&P 500 (C-fund) was down early and it found support at a very nice, clean place where the December peaks met the short-term rising support line. As I keep saying, there is a ton of support on this chart which could keep stocks buoyant, but if these support areas start breaking, things could collapse quickly. The whipsaw action yesterday reminded us how quickly things can chance. As I said above, technically, the charts look good. Fundamentally, we have some reasons to be concerned about these levels.
DWCPF (S-fund) gained 1% after Monday's 1% loss. The trend is up and the volatility has been within, or above, that rising trading channel since the start of the year. The trend is your friend although the failed breakout last week could have some bearish meaning. We'll have to see if the channel continues to hold and yesterday's sell off certainly did a good job of holding at that support again.
The EFA (I-fund) rallied nicely yesterday but the high was at the old support line. That old support can turn into resistance, but that resistance is rising at the moment.
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.
