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"Just below"

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Stocks opened modestly higher on Wednesday but it was just prelude to a Fed fueled explosion after Fed Chairman Jerome Powell basically said they are be getting close to the level they are seeking for interest rates. The indices immediately responded and never looked back. The Dow ended the day up 618-points, or 2.5%, and the gains were broad across all stock indices. That was the best day for the Dow since March. Bonds even posted a nice gain.

Daily TSP Funds Return

Investors are always looking for more certainty and with the trade war and interest rates still basically up in the air, the Fed chairman may have given some when he said that interest rates are now "just below" neutral as opposed to "a long way" from neutral as he said in October. That was enough to boost stocks significantly. He didn't actually say anything else differently than before, but the market seemed to be looking for an excuse to rebound off the lows, and "a long way" to "just below" to gave it the green light.

Whether it was because President Trump put pressure on the Fed - In an interview with the Washington Post on Tuesday Trump said, "So far, I'm not even a little bit happy with my selection of Jay [Jerome Powell]" - or if the Fed actually saw a change in the economy (ironically a slowdown), I don't know. But it is what it is, and that is bullish for stocks.

But the Fed also threw in a little warning saying, "An escalation in trade tensions, geopolitical uncertainty, or other adverse shocks could lead to a decline in investor appetite for risks in general," the report said. "The resulting drop in asset prices might be particularly large, given that valuations appear elevated relative to historical levels." - Source - CNBC

I was watching Fast Money on CNBC on Tuesday, I believe it was, and one of the traders said there was huge call options buying earlier this week (bets on the market), well above typical volume. These were very short-term options that expired rather quickly compared to what many options traders tend to do, so they were looking for a quick rally. The thought was they were betting on a good outcome from the G-20 summit this week so they can ring the register next week if any kind of trade deal was made with China this week. But perhaps they had other information. Perhaps the Federal Reserve's comments were known by a few "lucky" traders? Sure seems fishy. I have to get on that email list, I guess.

Technically, all the major indices that we watch but the Transports, are still below the 200-day EMA, which could act as resistance, but no matter how you slice it, the potential for the end of rate hikes being in site is a fundamental positive for stocks.

We do still have the trade war drama to deal with, but one out of the two major obstacles appears to be more clear for corporation and investors.




The S&P 500 / C-fund rallied hard and is now approaching the key 200-day EMA as well as the 50-day EMA and another major descending resistance line. Momentum may have changed but it is still in a big range that goes back to mid-October.




The DWCPF (S-fund) broke above its descending resistance line but is still well below the 50 and 200-day EMAs.




The Dow Transportation Index was the one major index to push above the 200-day EMA, and as we've talked about, it had been performing relative well before yesterday, most likely because of the deep decline in oil prices recently.




The overseas market and the I-fund were up but they haven't really had time to react to the Fed's statement but the dollar was down and that should help. But what happens if the dollar finds support at the bottom of this channel? You can see that the dollar bottomed right about the same time that stocks started their decline.




The AGG (bonds / F-fund) rallied on the idea that the Fed may be getting closer to the end of their interest rate hikes. Now this bearish chart is up against the 200-day EMA again, which failed in September.




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

Tom Crowley


Posted daily at www.tsptalk.com/comments.php

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Comments

  1. userque's Avatar
    Whether it was because President Trump put pressure on the Fed - In an interview with the Washington Post on Tuesday Trump said, "So far, I'm not even a little bit happy with my selection of Jay [Jerome Powell]" - or if the Fed actually saw a change in the economy (ironically a slowdown), I don't know. But it is what it is, and that is bullish for stocks.
    Correlation is not necessarily causation.

    It is quite possible Trump knew what Powell would say, and used the inside information to tweet/say something that would go over well, in his calculations, with his followers--to give the impression of fear and/or pressure.

    As I recall, Trump has front-run an "official" FED announcement via his twitter account once prior.

    In my opinion, I don't think Powell spoke from a position of 'fear' or 'pressure' from Trump. If he did speak from such a position, I don't think the below quote would have been spoken:

    But the Fed also threw in a little warning saying, "An escalation in trade tensions, geopolitical uncertainty, or other adverse shocks could lead to a decline in investor appetite for risks in general," the report said. "The resulting drop in asset prices might be particularly large, given that valuations appear elevated relative to historical levels." - Source - CNBC
    This quote almost speaks directly to Trump, and not in a sock-puppet kinda way.

    While I'm not convinced Powell is not a Trump sock-puppet, he deserves the benefit of the doubt ... at this point in time, imo.
  2. userque's Avatar
    Fed Chair Powell: ‘The law is clear,’ Trump can’t fire me
    https://www.cnbc.com/2019/03/11/fed-...t-fire-me.html

    Yeah ... not a sock puppet.

SPY (C Fund) (delayed)

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DWCPF (S Fund) (delayed)

(Stockcharts.com Real-time)
EFA (I Fund) (delayed)

(Stockcharts.com Real-time)
AGG (F Fund) (delayed)

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