Stocks gained back some of Monday's losses on Tuesday despite the eerie sound of that rubber band stretching in the S&P 500, but as of now the market keeps climbing the wall of worry despite some signs that a pullback is needed, or at least due. Small caps led yesterday as yields eased lower after the two-day rally triggered by Friday's strong jobs report, and that also helped the F-fund rebound. The dollar was also down helping the I-fund to decent day as well.
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We are seeing some negative divergences in the S&P 500 as momentum indicators slip lower while the index makes new highs, and the number of stocks advancing and making new highs is also declining despite the index being just a couple of days off an all-time high.
That said, the market is in an interesting situation where we saw a little bit of a tantrum in the market when the Fed suggested no rate cut in March, but the reason for that was because the economy has been holding up better than most economists had expected. The jobs report was a blowout, although it was boosted by part time jobs and fewer hours worked, but still the unemployment rate remains very low.
So, are investors worried that stocks can't go higher because the economy is too strong? Of course the alternative is that the economic data is being held up by smoke and mirrors, but so far the stock and markets haven't sniffed out that possibility.
The 10-year Treasury Yield pulled back yesterday after the big two day rally triggered by that jobs report. This dip is trying to fill in an open gap as well as test the 200-day EMA again, so it's too early to say it has peaked, but it did hold at resistance.
The dollar also pulled back to partially fill in Monday's open gap so this could be temporary weakness. The trend has been up since the breakout in January, and that rally has been triggered by the stronger economic data.
This chart is also a key for the stock market. The High Yield Corporate Bond Fund (HYG) is a gauge of the credit market and it has been consolidating sideways for weeks now, creating that bullish looking flag since the peak at the end of December. I suspect the stock market will follow whichever way this breaks, and while it could break down, right now this is a good looking chart.
I mentioned the Dow Transportation Index yesterday and what a day this economically sensitive index had yesterday. However the rally only pushed it up to the short and longer term resistance lines.
Like the HYG chart above it, the Transports could lead the way so if this bull flag breaks to the upside as they tend to do, perhaps small caps and the broader market indices will finally make a bullish move and catch up to the strength in the large caps.
But, going back to what I was saying originally, we have some troubling divergences in the indicators so they will be doing battle with what I see as some decent looking chart setups.
The S&P 500 (C-fund) has been stalling in the 4950 area. This could be a negative flat top type of formation starting, or it could be some kind of a bull flag, but it's too early to say. A little pause here wouldn't be a bad thing and even a move all the way down to 4850 would keep the positive trading channel alive. Eventually it will test that 50-day EMA but that average is moving up every day so even a long sideways consolidation could fix that without any major damage. Bottom line, as I mentioned above; the chart looks fine but some of the indicators, including the PMO indicator shown below, are show negative divergences.
DWCPF (S-fund) has a lot of good things going for it with those chart formations like bull flags, falling wedges, are holding at key support levels. As long as they hold, the bulls have a chance to see small caps start outperforming.
The EFA (I-fund) has formed that bullish looking inverted head and shoulders pattern and these tend to eventually break to the upside, but if the dollar continues to rally it will be tough for the I-fund to keep up with US stocks.
BND (bonds, F-fund) was up nicely yesterday and remains in that bullish looking flag above key support. The key here is that yields have to stop moving higher.
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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We are seeing some negative divergences in the S&P 500 as momentum indicators slip lower while the index makes new highs, and the number of stocks advancing and making new highs is also declining despite the index being just a couple of days off an all-time high.
That said, the market is in an interesting situation where we saw a little bit of a tantrum in the market when the Fed suggested no rate cut in March, but the reason for that was because the economy has been holding up better than most economists had expected. The jobs report was a blowout, although it was boosted by part time jobs and fewer hours worked, but still the unemployment rate remains very low.
So, are investors worried that stocks can't go higher because the economy is too strong? Of course the alternative is that the economic data is being held up by smoke and mirrors, but so far the stock and markets haven't sniffed out that possibility.
The 10-year Treasury Yield pulled back yesterday after the big two day rally triggered by that jobs report. This dip is trying to fill in an open gap as well as test the 200-day EMA again, so it's too early to say it has peaked, but it did hold at resistance.
The dollar also pulled back to partially fill in Monday's open gap so this could be temporary weakness. The trend has been up since the breakout in January, and that rally has been triggered by the stronger economic data.
This chart is also a key for the stock market. The High Yield Corporate Bond Fund (HYG) is a gauge of the credit market and it has been consolidating sideways for weeks now, creating that bullish looking flag since the peak at the end of December. I suspect the stock market will follow whichever way this breaks, and while it could break down, right now this is a good looking chart.
I mentioned the Dow Transportation Index yesterday and what a day this economically sensitive index had yesterday. However the rally only pushed it up to the short and longer term resistance lines.
Like the HYG chart above it, the Transports could lead the way so if this bull flag breaks to the upside as they tend to do, perhaps small caps and the broader market indices will finally make a bullish move and catch up to the strength in the large caps.
But, going back to what I was saying originally, we have some troubling divergences in the indicators so they will be doing battle with what I see as some decent looking chart setups.
The S&P 500 (C-fund) has been stalling in the 4950 area. This could be a negative flat top type of formation starting, or it could be some kind of a bull flag, but it's too early to say. A little pause here wouldn't be a bad thing and even a move all the way down to 4850 would keep the positive trading channel alive. Eventually it will test that 50-day EMA but that average is moving up every day so even a long sideways consolidation could fix that without any major damage. Bottom line, as I mentioned above; the chart looks fine but some of the indicators, including the PMO indicator shown below, are show negative divergences.
DWCPF (S-fund) has a lot of good things going for it with those chart formations like bull flags, falling wedges, are holding at key support levels. As long as they hold, the bulls have a chance to see small caps start outperforming.
The EFA (I-fund) has formed that bullish looking inverted head and shoulders pattern and these tend to eventually break to the upside, but if the dollar continues to rally it will be tough for the I-fund to keep up with US stocks.
BND (bonds, F-fund) was up nicely yesterday and remains in that bullish looking flag above key support. The key here is that yields have to stop moving higher.
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.
