TSP Talk Blog

Stocks opened sharply lower on Tuesday, but the lows of the day were made soon after the opening bell and we saw a drift higher as the day went on. Still, there were modest losses in many of the major indices with the Dow slipping 23-points, while the S&P and Nasdaq each gave up about a quarter of a percent. Small caps bucked the trend a posted a big gain as the back and forth in that index continued.

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The VIX popped yesterday despite the muted losses in stocks, but it's obvious that traders are looking for some possible wide swings today after the FOMC meeting and press conference, and don't forget the trade negotiations in China today.

Consumer Confidence came in a lot high than expected (135.7 vs. 125.5 est.) and so once again this shows the consumer remaining resilient. It's been a while, a year or two in fact, when I was suggesting that the new highs in this report back then could be a sign of a peak in the economic cycle, but here it is continuing to rise.




That's another head scratcher for the Fed to consider as they want to cut rates despite new highs in consumer confidence, new highs in stock prices, historic lows in unemployment, and wages rising. However, the bond market seems to be pricing in a good chance of a recession, despite the recent strong economic data. Too bad we won't get the July jobs report until Friday, after the Fed's decision. By the way, that report is estimating a gain of about 160,000 jobs, an unemployment rate of 3.6%, and wage growth of 0.3%.

Heading into today's rate decision, the Fed Funds Futures still see a 100% chance of a rate cut, with a 21% chance of it being 0.50% rather than 0.25%. The question is, what will a 0.25% cut do vs. a 0.50% cut do to the market? You would think that a 0.50% cut would be welcomed, but that might in fact spook the market, so I would guess that a 0.25% with the prospect of further data dependent cuts may be a bullish scenario. Because of that, Powell's press conference afterward could be more important than the actual decision.

There are sure a lot of folks expecting a "sell the news" reaction, and I suppose I am one of them, but when too many people have the same idea, the pain trade of the opposite happening becomes a good possibility. We'll see.

Apple reported after the bell and was up about 4% in after hours trading, so that should help the Dow and Nasdaq, and more than likely the other indices in sympathy, but then again, once the Fed delivers their decision on rates, Apple may be a distant memory.

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I'll make this quick today since technical analysis may be a bit less helpful with the emotional trading we are likely to see today.

The S&P 500 (C-fund) continued in that narrowing apex of the rising wedge formation. While rising wedges do tend to breakdown, they can also give us explosive false breakouts, so whichever way this breaks from the apex, we may not be able to trust it right away. We may need to give it a day or two to give us a true sense of which way it wants to go, and with the Fed on deck I can see that happening - a big move being faded in one direction or the other.




The DWCPF (S-fund) had a big day and the back and forth here continues. It seems like lately we are getting one big up day followed by a big down day, then it repeats. The 20-day EMA and the May high holding are certainly a plus technically, and the thinking may be that lower rates help small caps more, and they are less impacted by the trade war.




The VIX jumped above 14 yesterday, pulled back quite a bit, but then settled near 14 again and this is just investors positioning themselves for a possible big swing in either or both directions after the Fed and trade meetings today.




AGG (Bonds / F-fund) continues to drift sideways and it may be on hold waiting for the Fed as well, but as I mentioned above, the bond market seems to be front running the Fed as far as expecting economic weakness despite decent economic data recently.




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

Tom Crowley


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