TSP Talk Blog

Stocks flip flopped on Tuesday although the results were very mixed. The indices opened sharply higher, but posted the highs of the day in that first hour of trading, then drifted lower as the day went on. The Dow lost just 32-points, but that was 400-points off the highs. Small caps and the Transports led on the upside while the S&P and Nasdaq also fell into negative territory after a push to the lows in the final hour of trading.

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Consumer Confidence came in dramatically lower yesterday, which is not a surprise, but it was one of the largest one month drops of all time.

Oil was down 3.4% to 12.34, but that was well off the 10.00 low of the day.

We get the FOMC decision on interest rates today, but no changes to rates are expected. They are basically all-in at this point, however we do know what the Fed says can move the market.

This chart shows how much the Fed has in the game right now, and what is most striking, besides the latest push to over $6 trillion, was how steady this chart was until the financial crisis in 2008. After that, it is no wonder that stocks have done nothing but rally for 10 years. The only other serious hiccup came during that late 2018 sell-off when the Fed started to raise rates and actually shrank their balance sheet, so the market threw a tantrum and rates came back down. Now the coronavirus has them back near 0% and the Fed is on a another bond buying spree. So much for free markets.




This week we'll get a GDP estimate for the first quarter and consensus estimates are looking for a decline of about -4.3%. On Thursday we get another weekly initial jobless claims number and estimates are near 3 million. No April jobs report this Friday, May 1. It will be released next Friday.

On top of all of that we have one of the busiest earnings weeks of the quarter continuing.Google's stock was up sharply after hours yesterday, and that should give the Nasdaq some help today, after lagging yesterday. So the behemoth companies are holding up well - Alphabet, Wal-Mart, Amazon, and the like, are doing just fine. Meanwhile privately owned companies are struggling just to stay in business. That may be why the economy looks bad yet the stock market remains buoyant.

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The S&P 500 (C-fund) gapped up on Tuesday morning, but that gap was filled by the afternoon, and the S&P 500 closed near the lows of the day. A 15-point loss here is certainly not a big deal after Monday's big 42-point rally. It closed above the 50-day EMA for a 3rd straight day, which gets our attention, but the fact that is filled the open gap and came right back down may have some negative technical meaning. The 200-day EMA is just overhead.




The DWCPF / S-fund held onto a solid gain as it nears the top of that rising trading channel, which I have been calling a bear flag, but it has stretched out for so long that it may no longer be a valid flag.




The Dow Transportation Index was up 1% on the day but it hit and held at the 50-day EMA, so we'll have to see what that means going forward. The other indices have crossed it recently, and held so the Transports following would certainly be a bullish sign for the overall market. Can it do it, however?




The EFA / I-fund also moved above the 50-day EMA in early trading, but closed back below it while filling the gap it opened to start the day. It looks like a nice sideways consolidation over the last several weeks, but it is also a rising wedge which aren't usually bullish.




I'm bringing up China again because yesterday their market was down very sharply, about 3.5% at the lows, but came back to almost even creating a positive reversal day, although it is still below the breakdown level and the 50-day EMA.




The BND / F-fund had a big day as the 10-year yield fell back toward 0.60%. The sideways consolidation continued. They say flat tops bring market tops, so it may take a yield of below 0.50% to get this chart to break to the upside. Bond yields move counter to bond prices.




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

Tom Crowley



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