Another impressively slow day of trading, which favors the bulls since new money is always coming into the market through pensions and retirement savings plans, etc., and the bears seemed to have stepped aside for now allowing the indices to drift higher. The market is looking for a catalyst, of which there have been little over the last two weeks, although Nvidia does report earnings after the bell today. But it's not until next Friday that we get the next juicy piece of inflation data in the PCE Prices report.
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Daily TSP Funds Return
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Being a pre-holiday week we could see some reversal type action at some point this week, although I expected that early this week being a post options expiration week, yet all we have seen is more of the same. I am hearing that cash levels are high and that is always ammo for the stock market, especially as FOMO sinks in to those on the sidelines.
Small caps did lag yesterday despite lower yields as the 10-year Treasury Yield pulled back from its overhead resistance yesterday, although nothing serious yet and it could just be trying to fill that small open gap just below 4.40%. Support looks firm near 4.3% to 4.35% but the trend has been down since the April peak.
The dollar was up slightly, not making much of an impact. It remains in a downtrend despite the a 4-day move up off the 50-day average, and that could be a bear flag forming. The Fed's relentless reduction of their balance sheet could keep some support under the dollar.
The Dow Transportation Index is waving that red flag that I was concerned about with a 1.67% loss yesterday, pushing it firmly below support that should be holding in a bullish market. Being the market leader, this won't go unnoticed by money managers.
All eyes will be on Nvidia after the closing bell today. The chart looks bullish but there is a possible set up for a right shoulder pullback to be formed on any less then stellar news. It would be no surprise if they beat estimates handily, but Wall Street has some very high expectations here so it could be a little tough to beat those lofty expectations, or "whisper numbers." As I mentioned yesterday, Nvidia is the face of A-I and if the action is anything like the dot com bubble days when stocks went up relentlessly before the bubble burst, then the sky could be the limit - unless they really miss the ball today.
You may want to buckle up. The options market is anticipating and pricing in a 9% swing in NVDA's stock price after earnings - and that could be up or down.
Investor sentiment numbers are modestly bullish and perhaps lower than many might expect after the recent push to new highs, so perhaps there is enough cash on the sidelines to keep the rally going, but I will keep mentioning the red flags so we're not blindsided if we do see a change in direction.
The S&P 500 (C-fund) was up and seems comfortable in the narrow rising trading channel. It's already above resistance so that's not an issue, but a retest of the breakout area is always possible in the short-term. At this point, that's not much of a move at all. There's nothing that frustrates the bears more than a low volatility, slow relentless rally like the one we are in. If Nvidia sends stocks higher tomorrow, we could see some of those bears capitulate to the long side which, based on contrarian thinking, could finally cause some backing and filling. Of course an unexpected disappointment from Nvidia could do the same thing.
DWCPF (S-fund) was down yesterday and has been consolidating nicely for the last week. If it decided to back and fill the open gap below 2000 we could have some short-term trouble, but for now the 2030 area has shown to be supportive
The EFA (I-fund) took a small breather after Monday's negative reversal, but it did manage to close at the highs of the day after a weak morning. With the move up in the dollar, and Japan, Hong Kong, France, Germany, and London markets all down yesterday, I'm surprised the EFA was only down 0.15%.
BND (bonds / F-fund) was up on the pullback in yields. It is in a short-term no-man's land within that recent gap, which is filled. 71.70 looks to be the support that needs to hold.
Thanks so much for reading! We'll see you back here tomorrow.
Tom Crowley
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