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TSP Talk: Fed today - rate hike tomorrow

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Stocks got through a tumultuous day with a modest gain as stocks reversed to the upside and rallied into the close. The gains weren't big, but the move off the lows was. The Dow, which was down over 500-points at its lows, ended the day with a gain of 84-points. The S&P had an impressive gain of 24-points, but in comparison to Friday's 156-point loss it was just a blip on the screen. It did close more than 2% off Monday's intraday low. Bonds were down as the yield on the 10-year T-note made a new high.


Daily TSP Funds Return
The reversal on Monday wasn't too much of a surprise as it played out very close to how I opined in Monday's commentary, but that's just typical action after a fearful Friday sell off. This week the bulls need Turnaround Tuesday to play more of a follow through day, but there could be some nerves heading into Wednesday's 2 PM ET rate hike announcement and policy statement.

The two day FOMC meeting starts today and tomorrow at about 2 PM ET we will know the fate of the interest rate hike whether they move 0.25%, 0.50%, or 0.75%. Will they turn more dovish given the carnage in stocks, or are they on a mission to take on inflation? There is almost complete consensus that they will raise the Fed Funds rate by 0.50% but now, with the economy shrinking last quarter, will they adjust?

The market is pricing in a 90% chance of an additional 0.75% hike at the June meeting, so if the Fed backs off of that assumption at all, we could see some big moves in stocks. On the other hand, if they remain firm in their hawkish outlook, we could see new lows in stocks again, so this is a big week.

The yield on the 10-year Treasury Note hit 3% for the first time in many years yesterday, closing at 2.996%.




The price of oil was up despite another move higher in the dollar. This chart has been consolidating for a couple of months now, and for the last two trading days it has tried to poke its head above a resistance line. I would speculate, and that's all this is, that the Fed could say something this week that could create a pullback in the dollar, which had gone virtually straight up for the entire month of April, and that could be a catalyst to send the price of oil back in the direction of the March highs. I don't know if will make new highs, but it looks like it wants to breakout from its pennant formation.




The stock market had become oversold and investors had gotten very bearish, with good reason, but it does set up an environment ripe for a rebound. However, the bear market - depending on your definition - is still with us and being nimble, as nimble as we can in the TSP, seems like the right approach. There could be good gains to be had if we get a snap back rally, but the buy and hold approach may continue to be a loser for a few more months.

We will get the April jobs report on Friday with estimates near +400,000 jobs, so along with the Fed rate hike and more earnings coming in every day, it's a pretty busy week for stocks.





The S&P 500 (C-fund) created a nice reversal pattern on Monday, not unlike a few others we have seen during this correction / bear market - whatever you are calling it. Perhaps one red flag was the lack of volume during the reversal yesterday. We saw a similar reversal on April 25th and January 10th, but notice the lack of volume there as well, and they both failed rather quickly, so let's see how we get through the next day or two, especially after the Fed, to see if the bulls are really ready to put money to work.




DWCPF (S-fund / small caps) gained over 1% on the day, a very impressive move, but again not in comparison to Friday's loss. There is a possibility that Monday's high hit resistance in the form of the bottom of the big trading channel between 1800 and 2050. It could have also been an attempt to take out the stop loss orders that were below that line, so we definitely need to see some follow through here before getting too excited about small caps.




The EFA (I-fund) closed near the flat line after a reversal but that breakdown from the bear flag can't be all that good. A move back within the flag would be a confidence builder, but it would still be in a bear flag so this chart has a lot of work to do to turn into a bullish story.




BND (bonds / F-fund): Sometimes a chart reminds us that buying low doesn't mean it can't go lower.




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

Tom Crowley




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S&P500 (C Fund) (delayed)

(Stockcharts.com Real-time)
DWCPF (S Fund) (delayed)

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

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

(Stockcharts.com Real-time)

Yahoo Finance Realtime TSP Fund Tracking Index Quotes