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Market Commentary

May 5, 2021
 
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Stocks were mixed again on Tuesday with Dow able to close with a small gain of 20-points, but clearly the bears took some control, at least in the first half of the day, and shook up the growth sector pushing the Nasdaq and its large tech stocks down for a 1.9% loss, and small caps losing 1.4%.  The S&P 500 battled back some from a 1% plus decline to lose 0.68% on the day.  Bonds and the dollar were up.

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The positive reversal may be a sign of the bulls battling back quickly, but we'll have to look at the chart to see if the technical picture in the charts sustained any casualties.

The market has been counting on, and betting on, the fact that interest rates are going to stay near 0% until at last 2023 - so said the fed Chair Jerome Powell.  Then Treasury Secretary Yellen, who also happened to be an ex-Federal Reserve Chair, chimes in that she believes higher interest rates are a possibility in order to keep the economy from over-heating.  So, inflation matters.  The question is, the does the opinion of the Treasury Secretary matter and override the Fed's action?  That's what spooked the market a little yesterday.

The dollar rallied again, and like Friday, that put pressure on the market.  Despite that rally in the USD, we saw oil and lumber move higher again anyway.

                


The yield on the 10-year Treasury Note fell for a third straight day, but it did bounce off one of the moving averages again, so this is either another successful test of support, or we can squint our eyes and possibly see a bear flag in there.  As I mentioned yesterday, there really is no good reason for yields to come down unless maybe the Fed does start raise rates and that could stymie the economic growth.

               


The VIX made a move yesterday that could be telling us that something is different this time.  It broke above that 20 resistance area, and made it all the way to about 22 before flipping back over, but closing at its highest level since March.

               


Inflation is an issue, semiconductors are hard to get, now there's talk of possible higher interest rates and tightening from the Fed, but we're in a market that has seen investors buy every dip for months - especially when it's those large tech favorites, so let's see how they react to this modest pullback.


The S&P 500 (C-fund) dropped from the recent highs all the way down to the 20-day EMA, which wasn't that far down since the index has been chopping around between 4125 and 4225 for about three weeks now.  The 50-day EMA is probably due to get tagged, but there's a world of difference between the 50 and 200 day moving averages.  The 200-day EMA is just barely in the picture on the bottom right and that's a long way down.  One is 120 points away, and the other is more than 500 points away.  The PMO indicator is in full crossover mode so this dip may not go away that easily.

         
 

The DWCPF (S-fund) took a big hit yesterday, falling below its 50-day EMA but closed well off its lows to push back above the average so there are still buyers in that area.  However, that blue rising channel is now broken and that's a warning sign.

       


The EFA (I-fund) always takes the brunt of a big rally in the dollar, and we can see on this chart when that happens.  It failed again at the top of that red channel that I have been drawing, and it nearly tested its 50-day EMA yesterday.

        


The Dow Transportation Index didn't seem bugged by the interest rate hike talk.  It made another new closing high yesterday. 

        

It's enjoying the growth in the economy and the continued rally in oil, which is nearing its recent highs again.  If pipelines are shut down, oil has to get from place to place somehow, and the Transports are there to help.


BND (F-fund) popped higher on the Yellen interest rate call, but settled back down as the market digested something that is probably not going to happen.  If the economy is heating up, bonds should come down and yields should go higher.  If that turns around, we may have more to worry about because it would mean the Fed may be putting the breaks on growth.

       


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

Tom Crowley


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Chart provided courtesy of www.sentimentrader.com
 
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