Wednesday was yet another day that started out on the positive side and ended in the red.  The bulls made another attempt to buy weakness yesterday, but the bears were ready with another wave of selling into the close.  The Dow was fairly flat but the broader indices were down more sharply despite yields pulling back for a change.  The dollar was also down and that helped the I-fund lead the TSP funds yesterday.

Daily TSP Funds Return More returns

5% pullbacks are quite common and they actually occur 4 or 5 times a year on average. We had not seen a 5% pullback since the lows last October, but the S&P has now pulled back 4.9% from its March 28 high to yesterday's low. Of course a 10% correction starts as a 5% pullback so there's no guarantees that all we get here is a 5% dip, but it's possible and more common. 

The DWCPF, or the S-fund, is more volatile than the S&P 500 and it has already corrected 8% off the March high of 2100, down to yesterday's low, so maybe we're getting close to seeing the indices adjust to these new higher yields we have been seeing.

The 10-year Treasury Yield did decline yesterday so seeing stocks unable to rebound was a little surprising but as I said, there's nothing overly concerning yet about a 5% pullback or adjustment, in the S&P 500.
 
          


At this point the action and investor sentiment is more emotionally driven as extreme greed has been flipping over to concern and even some fear now.   Here is the CNN Fear and Greed Index which one month ago was 74 and hit the 80's a couple of times this year.

       
                        Chart source:  www.cnn.com/markets/fear-and-greed



Despite a 17% gain in United Airlines yesterday, the Dow Transportation Index took another big hit and the chart was damaged a little more after the bullish flag and the 200-day average broke down on Monday, and yesterday it took out the 2024 lows.  There is a long way down to fill in some open gaps from last year and there's not a whole lot of support in between.

            


I knew the stock marketed tended to do fairly well during election years, but breaking it down over the course of a year, certain months tend to do better than others.  This chart only goes up to the 2016 election, but it's over a century's worth of data showing how the Dow Jones performed during an election year.  

         


April and May seem to be two of the underperforming months, perhaps justifying this month's weakness. 

Can it be that easy - be cautious in April and May and load up again for June through August?
 

The S&P 500 (C-fund) has pulled back nearly 5% as I mentioned, but that PMO indicator, which has been falling and flashing a negative divergence for weeks, is actually still in positive territory.  Looking back a couple of years, and only looking at the bull markets, the more serious pullbacks all saw the PMO turn negative before the S&P 500 bottomed, so is it too early to call for a low?  Maybe, but that doesn't mean stocks will go straight down during a correction.  It could be choppy on the way down, just as stocks don't go straight up when trending higher. 

DWCPF (S-fund) had an awful day - not so much because of the 0.89% loss, but it created another negative outside reversal day - the pattern that triggered this mess on April 4th.  It's now day two below the 100-day moving average.

The EFA (I-fund) was up on the day thanks to a decent dip in the dollar yesterday.  For the second day in a row it found support at its 100 day EMA, but there is an open gap just above 75.00.

BND (Bonds / F-fund) rebounded on the pullback in yields and there is some room to run higher if this has any designs on filling some of those overhead open gaps.  If this bounces for a few days, we could see stocks follow.  But as of now this would be just a bounce in a downtrend.

        

      
Thanks so much for reading!  We'll see you back here tomorrow.

Tom Crowley


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