TSP Talk Blog

It was a choppy day on Wall Street on Tuesday as stocks opened higher but failed to hold those morning highs, and in the case of the Dow, S&P, and small caps, they failed to hold any gain at all. Bond yields moved up again (bonds and the F-fund down). The dollar was up and oil was down after some wild swings. There was some strength in the market leading Dow Transports and High Yield Corporate Bonds, but they closed well off their highs.

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There's only one guarantee that I can make for today: The market will be volatile. Anytime the Fed talks, and there is a press conference after the policy statement announcement, the market goes wild. But add to that the fact that market is now anticipating its first 0.75% move in rates since 1994, and we have a scenario that could tanks stocks, propel stocks, or both, before the day is done. The CME Group's probability of a 0.75% hike is now 96%. On Monday it was just 35%.

The 2-year Treasury yield is currently 3.43%, and after a 0.75% rate hike today the Fed's Fund rate would be 1.50% to 1.75%. The Fed tends to chase the 2 -year yield so they would still have a long way to go and what they have to say in the press conference about future hikes may make the difference for the stock market because 0.75% is basically priced in now.

Before the prior rate hike in May, stocks moved higher for three days, including the day of the rate hike, but everything reversed back down the day after that hike announcement.



During the March rate hike (above) stocks rallied during the two days leading up to the rate hike, including the day of the rate hike, and then they proceeded to rally for another two weeks.

So there you have it. No consistency. So, perhaps the chances of a rally after 2PM ET today sound good, but what happens on Thursday and afterward is like flipping a coin.

Unfortunately that's about all I can say on it because of the complete uncertainty of how the market will react. At this point we can't make any changes that will effect where we are invested for today's action, but you can decide and change how you want to be allocated for tomorrow. When you're done flipping that coin, can I borrow it?

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The S&P 500 (C-fund) was down again but the waterfall declining action stopped for a day. It is trying to find support at the lower end of a large wedge formation. Those open gaps are certainly potential targets and a Fed day can move the indices, but that would be one heck of a gain to get back up to 4010 to fill that upper gap. The support could get taken out on a Fed day, if for no other reason than the professional traders to go after the stops lying below support.




The DWCPF (S-fund) was in a similar situation, finding some sanity in the action after the prior three days of destruction. It is trading below the May lows and the descending support line is still well below the current area, and doesn't even show on the chart.




The EFA (I-fund) fell below its support line and this one has struggled particularly because of the recent new highs in the dollar. The open gaps are targets of hope, but the dollar will have to pull back to see them get filled.




BND (bonds / F-fund) made new lows again as it rides down the descending support line.




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

Tom Crowley



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