Stocks opened sharply lower on Wednesday after Nvidia announced concerns about the tariff impact on their earnings.  The rest of the tech heavy Nasdaq fell in sympathy as investors didn't want to stick around and wait for the next negative pre-announcement.  Outside of big tech, the broader indices held up better, but were down.  The I-fund led again with a smaller loss, and the F-fund rallied late as yields slipped for a 3rd straight day.

Daily TSP Funds Return More returns

The Fed didn't throw any lifelines to the stock market and Fed Chair Powell's lack of dovishness triggered another push lower in the afternoon.  Powell actually said the tariffs were higher than the Fed expected so he mentioned inflation as a concern.  That would be disappointing considering the benign inflation data that we have been getting in the recent CPI and PPI reports. 

Let's go to the one winner yesterday which was the F-fund (BND.)  The 10-year Treasury Yield fell for the third straight day after the negative reversal last Friday.  It is now sitting on support but also the precipice of a potential breakdown, and if that happens, the Fed may start to get fidgety. 

    


The Fed Rate historically follows the 2-year Treasury Yield which is currently 3.78% while the Fed Funds Rate is still 4.25% - 4.50%.  I think they'd be forced to act on another breakdown below March's low in yields because the bond market is not showing signs of inflationary activity, and the current probabilities show a 99% chance of between 1 and 4 0.25% rate cuts by the September meeting.

 


Where does this put the S&P 500, which is the C-fund and the benchmark of the US stock market?  The chart is not pretty but the question is the downside getting overdone?  Basically yesterday was sell off at resistance on average trading volume, but well below the volume of the recent capitulation-like selling.  It looks like a classic test of the lows, but a test of the lows doesn't have one particular outcome. 

      


There are several possibilities when there's an attempt at testing the prior low.  Let's look at a few. 

The "A" examples in the charts below are pullbacks toward the prior low that find support before hitting that low, then rebounds.

"B" and "C" examples show a couple of minor breakdowns where stops were likely hit and there was some capitulation selling before the reversal occurred.  "C" is a classic retest, capitulation low.

The "D" in 2023 was a fairly clean double bottom, although it didn't quite touch that previous low before rebounding.

The "E" example is a failed test of the lows and a new leg down is started.

          

And of course we have the "V" bottom which, after yesterday's sell off, is looking less likely, although technically there still room for the "V".

Small caps outperformed the large caps but it was big tech that did most of the damage.  Here is that S&P 500 Equal Weight Index chart again - same 500 stocks as the S&P 500 but weighted equally rather than by the highest market caps.  It was down 1.3%, or 1% less than the S&P 500 itself lost.  The resistance looks at the red descending line looks intimidating in a weak market.

       
 

Again it was the big tech stocks, led on the downside by Nvidia yesterday, and other semiconductor companies.  It lost 3% but it actually closed 1.4% off its lows.

     


Because of Friday's market holiday, we could be in the midst of a pre-holiday reversal which means we may not be able to trust the action of the last couple days (including today.)  The day before Good Friday actually has a very bullish seasonal record but a clear headwind this year.

From tsp.gov:  Holiday Closing

"Some financial markets will be closed on Friday, April 18, in observance of Good Friday. Consequently, the Thrift Savings Plan will not be updating share prices in any of the TSP funds for that day. Transactions that would have been processed Friday night (April 18) will be processed Monday night (April 21) at Monday's closing share prices."
 

DWCPF (S-fund) rolled over even before hitting resistance so there's certainly some weakness here, despite its relative strength over the large caps so far this week.  It barely made an attempt to fill in the open gap up at 2100.  However, there is a chance that the 1900 area is trying to hold as support after it held and the late rally yesterday kept it above that potential support.

    

ACWX (I-fund) continues to hold up better than the US stocks after the dollar made a new low for the year yesterday.  However, it has run into a wall of resistance itself.

    


Thanks so much for reading!  Have a great weekend, and for those who celebrate - have a Happy Easter and a joyous Passover.

Tom Crowley


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