Nvidia's earnings created a very weird day for stocks on Thursday as the Dow was down slightly but the S&P 500 and Nasdaq shined. The rally could be a sign that the pre-holiday reversal is over, but then again we didn't see gains across the board with small caps and the I-fund lagging badly, and about 2 stocks down for everyone up on the NYSE and Nasdaq. Yields and the dollar were up, and the Fed balance sheet went down another $20 billion and that put some pressure on many of the non-big tech sectors of the market.

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Nvidia was up nearly 25% yesterday which is astounding for a company its size, so it had its impact.  It is in the top five of the heaviest weighted stocks in the S&P 500 and a big part of the Nasdaq Composite and Nasdaq 100 ($NDX large cap tech) indices, which is why we saw the huge divergences in the indices.  It is not part of the Dow nor the small cap indices so they lagged quite a bit.

         


We did see a big gain in the Dow Transportation Index, which is a good sign, but this chart is still buried beneath tremendous resistance.
 
         

You can see above that the Russell 2000 small cap index not only lagged, but it was down sharply.  Those regional banks and the smaller oil services companies were down and that helped drag the index down.  It failed at some key resistance earlier this week but it did get a little bounce off of old resistance that it broke above last week, which may have now become support (green line.)


Without Nvidia yesterday, we could have seen red cross the board, but it was a big deal that the AI industry could be the leader of the next bull market.  What continues to weigh on stocks besides the usual debt ceiling concern, is the recent rise in yields and the dollar and the decline in the Fed's balance sheet.  Yields are up because of the inevitable new bonds that will be issued once the government finally agrees to the next wave of spending.

The strength in the dollar is also magnifying the weakness in commodities which, while good for the inflation picture and possibly getting the Fed to stop raising interest rates, it also shows a slowdown in demand as the economy flirts with a possible recession later this year.

          


What this all means is that the market is being held hostage by Washington, DC.  I've expressed my opinion on that as far as whether or not this stalemate is necessary or just politicians taking advantage of the spotlight on them.  After the recent sell the rumor reaction, there's a good possibility that something will eventually be done, and we could see some kind of major buy the news relief rally off of that with investor sentiment becoming more negative with each passing day without a deal.  We have good setups on the S&P 500 and Nasdaq.  Unfortunately the other charts will have more work to do to improve their charts.

Per tsp.gov: Holiday Closing:  Some financial markets will be closed on Monday, May 29, in observance of Memorial Day. The Thrift Savings Plan will also be closed. Transactions that would have been processed Monday night (May 29) will be processed Tuesday night (May 30) at Tuesday's closing share prices.

The S&P 500 (C-fund) bounced 0.88% thanks to Nvidia, and that gain helped keep that repeating pattern alive (two red boxes.)  The sideways action continues and we're not only talking about the right shoulder between March 30 and now, but also going back to the left shoulder in February.  This is a bullish formation but we're all aware that the outcome in DC next week could change everything, so investors remain on edge. 

       


The DWCPF (S-fund) was down yesterday lagging badly, and not exactly climbing the wall of worry with the S&P 500 and Nasdaq, although it is still off its lows made a couple of months ago.

     


The EFA (I-fund) was down as well as the dollar gapped up yet again and the Fed balance sheet dropped another $20 billion.  This helps control inflation but a stronger dollar means prices decrease because it takes fewer dollars to buy things, including international stocks.

       

BND (Bonds / F-fund) continues to slide down as investors know what's coming once a debt deal is finally made - more bonds issued as the country goes further into debt.

       

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Thanks so much for reading.  Have a great holiday weekend!  Let's take sometime this weekend to remember those who sacrificed everything for our freedom!

Tom Crowley

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