TSP Talk Blog

Stocks stumbled again on Wednesday as the two month long back and forth action continues. New month, new direction? Maybe, but what was the direction for the last two months? The Dow lost 135-points on the day and the losses were fairly broad across most indices. The Transports fell nearly 2% after failing at resistance again. The I-fund lagged again with another gain for the dollar, but there's an interesting development there that we'll talk about below.

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Last week the hype behind AI and Nvidia's earnings helped push some indices to 2023 highs. This week the wind is coming out of that sail a bit as Nvidia was down another 5.7% to 378 yesterday, so it is now 10% off this week's high. But keeping things real, it was about 305 before the earnings came out last Wednesday after the bell, so it is still up 24% in the last four trading sessions.

My point is that the market has been concerned about the debt ceiling, but seems to have priced that in. Then it priced in the new AI buzz from Nvidia. So what is next?

I would suggest that investors will now move their focus back to the Fed and their meeting on June 14. After some comments from a couple Fed officials yesterday who suggested they should pause and watch the data more before acting, the probability of a rate hike at that meeting came down quite a bit. On May 30 the probability of a 0.25% hike was 67%. Yesterday it fell to 35%.




That makes Friday's May Jobs Report that much more interesting. Estimates are looking for a gain of 190,000 jobs, and an unemployment rate of 3.5%, so any major surprises could either confirm no hike, or give the Fed ammunition for another hike. Unless it comes inline with estimates, it could be a big day for the stock market on Friday.

The 10-year Yield Treasury Note continued its dip off the recent highs after almost filling in an overhead gap last Friday, and it was down for a third straight day yesterday helping the F-fund to another gain.



The dollar was up yesterday but it suspiciously flipped over right at a double top. The trend is still up, but there's a lot of open gaps below if this is going to pull back after that negative reversal yesterday.


The S&P 500 has been basically moving sideways for the last two months, with temporary signs of life when it moved above the recent highs a couple of times. But here it is back in the range where every big rally is being sold, and every sell off being bought. So unless you timed your IFTs in April and May just right, you have probably been getting whipped back and forth with everyone else - whether you are in stocks or not.




The Dow Transportation Index threw us another curve yesterday, or should I say it did more of the same? This market leader has repeatedly flirted with breaking above resistance, but the resilience of that resistance has won out every time. Yesterday's 1.83% loss reminded us that the bears remain in control while this remains under the red resistance line, plus the 50 and 200-day EMAs.




As for the debt ceiling. At this point the done deal is mostly priced in but we could see some celebratory buying once it is signed. So the risk is mostly on the downside if there are any hiccups before getting to that point. They are running out of time. As I write this they are getting ready to vote on the deal in The House.

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The S&P 500 (C-fund) is back in the range and back under 4200, which it can't seem to hold. 4050 and the 50-day EMA are doing a good job of holding as support, but there is no resolution to this consolidation yet. Yesterday's lows did come in an interest area (red horizontal line) that could act as support, although last week it did cut below that line fairly easily.




The DWCPF (S-fund) was down sharply early yesterday but it had a decent positive reversal and created a bit of a tail that could mean short term higher prices, but this is clearly still in a range that shows no signs of breaking in either direction. The bears have an edge in that the formation looks like a large bear flag, but the bulls may claim that the March lows have held for more than two month now.




The EFA (I-fund) also had a positive reversal day despite another big loss. As I pointed out above, it will be interesting to see if the double top in the dollar creates some kind of playable bounce in the I-fund, now that it filled one of its larger open gaps.




BND (Bonds / F-fund) put in a 3rd positive day after bouncing off of the 200-day MA, but look where it is having trouble - the 50 and 200-day EMAs. The increased debt ceiling was bearish for bonds creating that long losing streak in mid-May, so perhaps this is experiencing a buy the news reaction to the potential deal?




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

Tom Crowley




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