The market continued its upside momentum as we head into the end of a successful first quarter for stocks. The Dow was up 141-points, and other than some minor losses in the Russell 2000, the gains were fairly broad among the various indices. Bonds were up on a dip in yields, and the I-fund led the TSP funds with the help of another decline in the dollar.
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It's the end of the first quarter and with stocks up heading into these final days, we've seen some buying as the money managers do their typical window dressing and pad their quarterly reports with the 1st quarter winners. With the threat of a recession looming, it will be interesting to see if they hold onto these next week and into the second quarter.
With bonds up as well during Q1 there shouldn't be a lot of portfolio rebalancing, and if anything it will be a question of whether the money managers want to start raising cash with the economic uncertainty in the air, or if bonds are they place to be as the Fed may be forced to eventually cut rates, as bonds do well when yields are falling.
I've gotten off to a weak start this year having watched my system indicators turn from a bear market approach to a bull market approach toward the end of January, which had me get more aggressive and buying 100% into the S-fund in mid-February for the first time since the end of 2021. Of course that was just before the bank failures were about to hit the headlines and crush the small bank stocks in the S-fund. Our TSP Talk Plus subscribers have been following this drama caused by a very choppy market that has whipsawed many market timers.
So I've had some bad luck, and probably too slow of a reaction to get out of that mess. Then I spent the last week or so fading the rally, out of IFTs, and watching this window dressing rally, mostly driven by a lot of investors like me who have been positioned too defensively.
I will start the second quarter fresh, and while I continue to follow my system signals, the recession concerns may have me acting less aggressive than I otherwise might under the current bullish technical conditions. The question is whether that will be the correct approach in the second quarter.
The 10-year Yield and the dollar were down yesterday giving stocks a reason to remain buoyant. The Nasdaq and growth stocks particularly appreciate the lower yields and that is a sign that the bond market is perhaps preparing for a shift in the Fed's monetary policy to a less hawkish approach.
That said, we get the key PCE Prices and personal income reports today and we could get a better clue idea about which way the Fed is leaning.
The S&P 500 (C-fund) continues to baffle the bears as it jumped through another level of resistance and seems headed for the open gap near 4080. It is above all of the major moving averages and descending resistance, and all of this while trading volume has been drying up. Today's PCE Prices report could spark some higher volume, whether to being in more buyers who otherwise were holding off until the inflationary data was released, or to turn some of the new bullish converts back to the sell side if it is too hot.
The DWCPF (S-fund) is still considered in a bear flag, although I continue to look to the December bear flag that turned out just fine for the index. The flag is close to testing some very interesting resistance that could tell us a lot -- the top of the flag, the 50-day EMA, and the top of the open gap all meet around the 1670 area.
The EFA (I-fund) just keeps on keeping on, as the dollar's persistence weakness lately has been a big catalyst as this fund opening up a forth gap (red) and it would probably be really tough for this to continue higher for any length of time without revisiting at least a couple of these gaps.
BND (bonds / F-fund) remains below the recent high and with that wide range between the blue lines. There is an open gap above and below as this chops around waiting for more information from the Fed and economic data.
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Thanks so much for reading. Have a great weekend!
Tom Crowley
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