OK, so it's not going to be straight up after the two-day rally rolled over on Tuesday.  It wasn't a viscous decline but it wiped out some or all of Monday's gains as the "V" watch is still on.  "V" bottoms are more rare than retests, and not all tests hold, so there are still a few possibilities here.  Bonds were up giving the F-fund a lift, and once again the I-fund outperformed the C and S funds by posting just a small loss on the day.

Daily TSP Funds Return More returns

We have day two of the Fed's FOMC meeting today, and the policy statement is usually released at about 2 PM ET, with a press conference afterward.  That makes it a little difficult to make any kind of decision on Wednesday morning, as to where you want your money to be on Thursday. 

The Fed will have to take into consideration some very strong Industrial Production data we received yesterday.  It may not bode well for an interest rate cut, but it's a good sign for the economy.  It's not a major data point but there's nothing recessionary here.

Industrial Production For: Feb
Actual: 0.7%
B.com Forecast: 0.3%
B.com Cons: 0.2%
Prior: 0.3%


The S&P 500 (C-fund) backed off again from that 200-day EMA which acted as resistance on Monday.  This could lead to a few outcomes: 

* A reversal back up today that keeps the "V" low theory alive. 
* A test of the lows that holds. 
* A test of the lows that fails. 
* A test of the lows that fails - triggers capitulation, and then reverses.  We saw that often during the bear market of 2022, of all times, as I will show in the next charts. 

        

Right now the low from last week is holding, but the resistance is also holding so there may be a little battle in this 5500 - 5700 range.

Here is that chart from the bear market year of 2022.  Notice the lows get repeatedly tested.  Also notice that the breakdowns didn't last long.  Those are generally considered capitulations, meaning anyone who was considering selling, sold at that point, so that left only buyers.  Of course that was a bear market and we saw several impressive bear market rallies - all of which had to be sold until the final low in October.  Those green circles are what I am calling capitulation sell offs as the prior lows fail.  They are scary when they show up, but it's usually a time to start buying and prepare for a bounce. 

       

Let's take a look at 2023 and 2024: "V" bottoms are not the norm but for some reason we saw several in 2023 and 2024.

        

In 2023 they occurred below the 200-day EMA as we have seen this year.  Like 2022, the capitulation low in 2023 occurred in October, and there was a also "V" bottom low in mid-March.  There was an FOMC meeting on March 22 of that year.  The Fed actually raised interest rates at that meeting.

So we're mentally preparing for the possibility of any of these occurring, but I am leaning strongly on the side that last weeks lows will hold - or they will get retested, scare a few more folks out, then reverse higher.  If I'm wrong, it will be pretty obvious when looking at an updated chart.

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DWCPF (S-fund) was down sharply giving back Monday's gains, but the V bottom is still intact.  It would likely test the lows if the S&P 500 does, and we know this will magnify any move in the S&P.  A rally up to the old broken descending support line is very possible, as is a test up to the 200-day EMA.  This is very oversold and now almost 4 months off its November highs. 

         


ACWX (the I-fund tracking index) is again holding up better, and since the breakout above the bearish diamond formation, this chart has now moved above the September highs.  There is still a double top pullback possibility here if the 57 area can't hold as support. 

         

The I fund likes a falling dollar and the UUP has been sitting on its 200-day EMA for almost two weeks without a bounce. 

BND (F-fund) looks very similar to the I-fund chart as the weak dollar has been buoying the bond market as well.  This is trying to hold at the 72.75 area.  There could be more downward grind, but this is fairly bullish looking chart as is.

         

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

Tom Crowley


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