TSP Talk Blog

The CPI report came out on Thursday morning, and after investors assessed the data, the bulls came out on top again keeping this strong week for stocks going. The Dow gained 217-points and the drop in dollar and the yields helped push prices higher almost across the board. Some of the stock fund charts are up against stiff resistance and the next few trading days could be key for this current bear market rally. Small caps and the I-fund led on the upside, while the bonds in the F-fund also posted a big gain.

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The CPI report came out inline with estimates so investors were initially unsure how to react with some back and forth trading initially in the futures market before the bulls took over. There was a battle going on between the "sell the news" mindset, and buyers who were relieved that the report didn't contain any negative surprises.

After all was said and done the data pushed the chances of a 0.25% interest rate hike in February from about 75% up to 96%, lowering the chances of a 0.50% hike to below 4%. The market seems OK with that, but that means the Fed is still raising interest rates, and up next will be the release of 4th quarter earnings where we will find out just how much the 2022 interest rate hikes impacted corporate earnings and future earnings guidance.

The inline CPI sent the dollar and yields down sharply as the market priced in that new outlook on inflation and interest rates. A falling dollar will "assist" prices of most anything priced in dollar. I say assist prices rather than raise prices because it doesn't mean everything has to go up, but instead it could make losses more muted.



But yesterday most prices were up from stocks, bonds (F-fund) to gold, silver, oil, even bitcoin and other cryptocurrencies had a big day.

The elephant in the room is the long-term bear market resistance line, which is very close to being tested. All the bears are pointing to it as if it is a brick wall where stocks will fail. They were correct at the other peaks of that resistance line, but we all wish it was that easy. The cautious move at this point might be to raise cash, but a breakout above resistance could turn sentiment around dramatically.




Here's another possible warnings sign -- or a pivot point. The VIX, or volatility index and fear gauge, is back down to the 2022 lows. This reading below 20 was hit near prior peaks in the S&P 500 last year. We still haven't seen any kind of washout fear filled low yet in stocks that sends the VIX spiking higher, which is what is keeping many investors on the bearish side. You may recall that the VIX hit 85 during the COVID crash. It hasn't even touched 40 since 2020.




Looking for something bullish? The High Yield Corporate Bond Fund HYG made a new high and this often leads the market.




So we have some mixed signals going forward. There's definitely some signs that things have, and are improving, but can stocks continue to move higher and leave the October lows behind while the Fed is still raising interest rates? The bulls have the momentum but the bears have the resistance on the charts.


Holiday Monday! From tsp.gov:

"Some financial markets will be closed on Monday, January 16, in observance of Martin Luther King Jr. Day. The Thrift Savings Plan will also be closed. Transactions that would have been processed Monday night (January 16) will be processed Tuesday night (January 17) at Tuesday's closing share prices."

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The S&P 500 (C-fund) ran up on the CPI report, hit the wall of 200-day moving averages and stalled. Not a big surprise as it tends to be resistance on an initial test, but how it reacts from here could be the tell. And even if it can get over the moving averages, there's a little more resistance just above them, with 4050 - 4100 acting as some serious lines in the sand. The cup and handle formation is actually a positive development because of that higher low. Now it just needs to make a higher high above 4100.




The DWCPF (S-fund) continues to surge in January after the December destruction. Another nice looking cup and handle formation here as it moves up to test resistance. 1700+ could be tough, but if it gets above that, this market could put the bear market behind it. But resistance is resistance, and 1700 could be too formidable to recapture, in which case the bears would bite back.




The EFA / I-fund has also been on fire and made another higher high yesterday with a 1.5% gain. The dollar tanking yesterday on the CPI data certainly helped.




BND (bonds / F-fund) broke out to another multi-month high as it pushed above the December peak. The market wants the Fed to stop cutting rates and the only way the Fed will do that would be because it sees sufficient evidence that economic condition have slowed down, and that would be the perfect environment for lower bond yields and high bond prices.




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Thanks so much for reading. Have a great holiday weekend!

Tom Crowley




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