Stocks chopped around in a fairly tight range on Wednesday closing mixed with the Dow leaning positive, but modest losses in the broader indices. Yields and the dollar were down but again that did not ignite any buying interest for equities, although the selling quieted down after Monday and Tuesday's sharp declines. Bonds and the F-fund were up again with yields sliding lower and the I-fund continues to hold up with that dollar weakness. The S&P 500 closed at its lowest level in a month.
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The action seemed tentative yesterday as the selling slowed down, but dip buyers were timid. Of course with the PPI report - producer prices coming out on Friday, and the CPI report being released next Tuesday, which leads right into the interest rate hike on Wednesday, big bets at this point would be dangerous. We have seen very different moves in the stock market after recent CPI reports and interest rate hikes / Fed commentary, but one thing we can likely count on is that the market will move bigly. Which direction, is the question.
The Yield on the 10-year T-note fell sharply yesterday despite getting recent positive updates in the 4th quarter GDP. But inventors and analysts know that there is a lag in the impact of higher interest rates on the economy and we could have a long way to go before the data shows this, including a large decrease in corporate earnings estimates.
The drop in yields has kept bond prices and the F-fund quite buoyant as the rally off the lows continues. The F-fund may turn out to be a good alternative to cash (G-fund) in 2023 for those who want to be out of stocks, but of course there is risk in bonds as they can go down, unlike the G-fund.
The dollar was down again and this chart is dancing on the orange 200-day moving average. I noted the bull flag that failed and broke lower, which is not typical of a bull flag. Flag formations have been a little unreliable this year.
We had a couple of bear flags break to the upside on the S&P 500 this year, which is even more odd considering the bear market. Chart formations are considered reliable forms of analysis, but like everything else, they don't always work the way we hope or expect.
One of the biggest winners of the recent bear market rally has been the Dow, which had gotten back 70% of the 2022 bear market losses. This data from sentimenTrader.com shows that prior rebounds of this magnitude has led to some short term weakness, but longer term gains with only 1 loss 12 months later in the twelve prior instances.
As for the short-term pain, I don't know how many of these "1 Month Later" instances came during December, the best month of the year historically for stocks, but only 4 in 10 were up.
The S&P 500 (C-fund) has now closed below the rising trading channel for two straight days and it has been flirting with its 50-day EMA the last couple of days. Perhaps surprisingly, yesterday's close was the lowest since November 9th which was 4-weeks ago. The overhead gap (blue) was filled last week but the lower gap (red) is still open. The PMO indicator has moved below its moving average which is not a great sign. It looked like it was going to cross last week but the Fed speech reversed it. Here it is again.
The DWCPF (S-fund) has been trading within its open gap and yesterday it closed in it for the first time. The lower end of the gap meets up with a rising support line near 1600, so that is a credible potential downside target.
The EFA (I-fund) continues to hold up well mostly because of the weakness in the dollar, but the chart looks fine, Short term, it wouldn't be a surprise to come back to test the 200-day EMA and /or the rising support line. The large open gap below 62 is always a possible target making this chart a little vulnerable despite the bullish look.
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