TSP Talk Blog

Stocks rallied yesterday in another volatile day after stocks opened up near their highs, lost it all, and then rallied into the close to recapture those morning highs. That set up a nice positive reversal day on the charts. The Dow gained 194-points, while small caps and the Nasdaq led on the upside. Yields fell so the F-fund had another good day. It's been very choppy out there and we'll have to see if the bulls can put together back to back positive days.

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For some reason, after the bell yesterday, the futures were falling off the market closing bell highs. The S&P futures were up about 36-points at the 4PM ET cash market close but by the 5PM futures close they were up just 21-points, so there may be a bit of a headwind at Friday's opening. There was the release of the results of the Fed's banking stress test but everything seemed to be OK. It's just been very whippy out there recently and that action continued after the bell.

The market is starting to focus on the economy as they sense that the Fed is going after inflation hard. Maybe too late, and they seem have this pattern with their monetary policy - that is to not move quickly or aggressively enough, and then go too far to make up for it.

So now that they are raising rates much more quickly then they originally planned, the market is adjusting to the potential economic weakness this may create and we started to see that in the bond market with a modest pullback in yields over the last week or so, but more so in other areas of the market.




Someone turned off the switch on commodities in June. We've seen the price of oil come down quite a bit, and natural gas has plummeted in recent weeks after that tremendous rally in 2022. The XLE is the energy sector ETF and it has fallen about 25% in just the last two plus weeks.




The price of copper and lumber have taken quite a hit as well, although they both peaked several months ago. What inflation?




How about food - corn and wheat? Smashed in recent weeks.




So, is this a good thing for prices or is there something wrong with this picture? Are the commodity traders dumping their positions because they believe the economy is going to weaken too quickly?

Anyway, something else to look at and there seems to be some kind of a shift going on. Stocks have come off their lows but certainly no monster bear market rally as we had expected - at least not yet. Perhaps the sharp selling since the April peak was the stock market looking ahead and pricing in this possible recessionary set up?

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The S&P 500 (C-fund) has closed higher than its opening price for four straight days but the gains haven't been what we might expect during an extreme oversold, overly bearish environment. This is usually the recipe for a rip your face off rally, as they call it, but this week it has been more of a yawner as far as bear market rallies go. Are "they" trying to get the bulls to give up on a bounce - and THEN take things higher into the open gaps? Or, are the bulls that weak that they are missing their opportunity for such a rally? The bears may run out of patience if the bulls stall any longer.




The DWCPF (S-fund) is now about 84 points off its June 16th low. That's fine but that's after a 240 point decline off the early June high. It's not that impressive if you look at it that way and the bulls need to show up and follow through, or those pesky bears will be back with a vengeance.




The Dow Transportation Index is another index that has failed to make much of a move off its lows. It could be forming a bottom but where are the buyers after the bears crushed this index earlier this month? I think you get the theme here.




BND (bonds / F-fund) rallied form a second day but this is a stubborn bear market and resistance isn't too far overhead after the recent rally.




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Thanks for reading. Have a great weekend!

Tom Crowley



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