05/22/26
The highly anticipated earnings release from Nvidia's did little to influence the action on Thursday, and instead it was once again it was the price of oil that did most of the talking. The WTIC oil was up early and stocks were down, then later oil slipped lower and stocks started to rally. Yields were up slightly and not as much of a factor, but what may also be a factor is the pre-holiday trading.
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Daily TSP Funds Return
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As we get closer to the long holiday weekend we see the indices bouncing back from their pullback that started last week, and I can't help but wonder if this action is holiday related. If you're new here, that means that stocks tend to move away from their larger trend as we get closer to a holiday weekend, and then it reverses back after the weekend. Being that the action has been a little choppy recently, it's not as easy to determine the intent, but the key is, it's not always easy to trust the trading action heading into a long weekend.
Nividia ended the day down 1.8% but that was less of an influence than the price of oil, as Thursday's intraday chart shows. It's still all about oil, and we know a headline or two could push oil in one direction or the other, so the stock market remains at its mercy until the next catalyst comes along.
The 10-year Treasury
Yield was up slightly yesterday, and the chart is showing a textbook cup and handle breakout, with an attempted pullback to the breakout line, as it eye the open gap below. This screams higher yields - maybe not today, but in the coming weeks. I suppose that could change if the price of oil started to fall quickly, but that's not what the chart is telling us now.
The 30-year Treasury Yield remains over 5% and it has a similar situation, and again it could come back to test the breakout line before moving higher. That pullback could be the pre-holiday reversal.
If bonds are boring you, you're missing the story. Yields and interest rates are everything to the stock market. The Fed Funds Rate is almost always following the yield of the 2-year Treasury Note. The Fed Funds Rate is currently 3.62% and the 2-year Yield is 4.07%, so the Fed is certainly considering a rate hike if nothing changes.
Yields can get out of control, as we saw in the 1980's when they were double digits. Somehow the Japanese stock market is trading just off its recent highs despite their 10-year Treasury Yield doubling in the the last 10 months. I suppose that this is good news for the US stock market but what is happening in Japan doesn't seem right and something is going to have to give there.
The S&P 500 (C-fund) was up for a second day, but again take the last few days with a grain of salt with the holiday coming up. This is a nice looking chart, but that "F" flag won't last forever and they tend to eventually break to the downside. Is it different this time? Last year survived a similar fate, which brings up an interesting point...
When we look at last year's "V" bottom and subsequent big rally that lasted for months, we get a little complacent and expect the same result. That could happen, but that's not the norm. More recently, the sell off from the Iran war and soaring oil prices and bond yields, has investors more on guard recently, and that tends to keep the rally going like it did last year. So the question is, will history repeat itself, or did last year's action set up a trap for this year?
Holiday Closing: Some financial markets will be closed on Monday, 5/25 in observance of Memorial Day. The Thrift Savings Plan will also be closed. Transactions that would have been processed Monday night (May 25) will be processed Tuesday night (May 26) at Tuesday's closing share prices.
Additional TSP Fund Charts:
DWCPF (S-fund) had another good day as it fills out the potential right shoulder of the bearish head and shoulders pattern I pointed out on Thursday. One reason that this may not be a head and shoulders pattern is that the S&P 500 is not forming a head and shoulders pattern. One reason for that could be a head and shoulders is the increase in yields and interest rates, which negatively impacts small caps much more than the large cap companies.
ACWX (I-fund) also had a good day, making it two solid rallies in a row. Again, is this the pre-holiday reversal that will revert back to the pullback that started last week? We have a possible bull flag, but yesterday's gain did fill in an open gap (blue box), and that could cause some resistance.
BND (bonds / F-fund) rallied again as it tries to fill in its large open gap from last week. The snap back rally looks impressive, but there is a lot of resistance in the 73.2 area.
Thanks so much for reading! Have a great Memorial Day Weekend! Please take time to remember those who sacrificed everything for us. We'll see you on Tuesday.
Tom Crowley
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