Stocks opened higher on Monday with a gap up opening, which came within 2 points of closing within an hour or so, but the bulls bought that morning dip and it led to a nice comeback day for the stock market. It was an overdue, oversold, rebound but it held, and that's more than we could say for last week's action. The S&P 500 gained 43-points, but that was almost 30-point off the afternoon highs so we did see some late selling again - just not enough to spoil the bulls' rare April rally.
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If we're looking for some hidden weakness yesterday, other than closing off the highs, it was hard to find. Advancing stocks and advancing volume led decliners by a 3 to 1 margin on the NYSE, and it was closer to 2 to 1 on the Nasdaq, so there wasn't any internal weakness hiding in the breadth. But it's just one day after a 6 day decline.
Also, the Transportation Index and the Russell 2000 small caps Index were both up about 1%, High Yield Corporate Bonds had a big day with HYG up 4 straight days, and the VIX (Volatility Index) was down almost 10% yesterday - all confirming a strong day for the stock market.
That could all change on a dime with some kind of geo-political or yield influencing event, but without that, the bulls seems to have a case for a little bounce. But earnings reports will start coming heavy this week and the PCE Prices data comes out on Friday, so there are potential catalysts that could make it tough on the bulls.
Here's a list of earnings coming out in the next three days, including Tesla, UPS, and Visa today, then Meta, Microsoft, Alphabet, and Intel to name a few of the bigger names coming out between now and Thursday.
Next week it's Amazon and Apple that lead the list.
This is where the bulls make their case why stocks have finished pulling back, and the bears plead their case why relief rallies need to be sold.
Yields and the dollar have stabilized near the recent highs, and they could be coiling up for a big move in one direction or the other, but a flat-lining 10-year Treasury Yield over the last week is actually a good thing. As we've talked about before, it not how high or low yields are - the market adjusts to that. It's what direction are they going in and last week's pullback in stocks was adjusting to this new leg higher in the 10-year yields, which for now, is trying to hold between 4.6% and 4.7%. Come Friday and that PCE report, we could see a break out of this mini range, if not sooner.
The price of oil pulled back last week as there was no new escalation of war in the Middle East, but the chart is showing some support in that $82 area where the 50-day has been holding again. A break below 80 could signal the stock market that tensions are easing, but a bounce back to the previous highs could ignite more bearish action in stocks.
It was just one positive day in the last seven so the bulls can't claim any kind of victory yet. Tacking onto Monday's gains today may get some of last week's washed out bulls back on board as FOMO could kick in. It's too early to say if this rally needs to be sold. As mentioned previously, the chart comparing this pullback to July 2023 suggests a two-week bounce before the downtrend continued. Upcoming earnings reports and looming inflation data later this week will be key catalysts to watch.
The S&P 500 (C-fund) got a decent bounce off the recent lows, but the action didn't tell us too much except that the bleeding stopped for a day. There was some resistance near yesterday's high so that's concerning, but the S&P was up over 70-points at the time so I can understand some investors taking some money off the table at resistance. Earnings season could help dictate whether last week's lows will hold or if more relief is one the way, but the market mover this week may not come until Friday's PCE Prices report.
DWCPF (S-fund) gained 1% on the day, ending its 6-day losing streak. There's a little resistance up near yesterday's highs, but I'm more concerned about the next level where the 50-day EMA is crossing the prior low, just under 2000.
The EFA (I-fund) had a nice day leading the TSP funds with a 1.2% gain, after holding firm above that 100-day moving average for several days. It filled in a small open gap from Last Tuesday's gap down, and managed to close above it.
BND (Bonds / F-fund) was up slightly and there are plenty of gaps around to lure this up. It's an ugly chart but perhaps due for a little relief in the short-term?
Thanks so much for reading! We'll see you back here tomorrow.
Tom Crowley
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