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TSP Talk: FOMC Rate Hike Day

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January ends with a big rally, flipping Monday's sell off around and leaving the market at a pivotal point in front of today's FOMC meeting and the highly anticipated 0.25% interest rate hike. The final hour of trading yesterday saw the indices explode into the close, which is a little suspicious heading into that rate hike, but it felt like a short squeeze as the bears, who were run over in January, may be capitulating from their bearish outlook and are worried about more upside. The Dow gained 469-points. Bonds were up, and the dollar was down.

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As we've been talking about for several days, many charts are sitting at, just below, or just above, some major resistance, and what the Fed has to say today, plus the earnings from tech giants Apple, Google, and Amazon tomorrow after the close, will be the catalyst for either a major breakout, a breakdown, or maybe some sort of fake out.

Why stocks would be sold aggressively on a Monday and bought back feverishly on a Tuesday before the Fed is not something we can understand, but I am always suspicious of the large financial intuitions trying to get us to lean the wrong way before a major pivot point.

At this point, unless you are an economist or a tech analyst, we can merely speculative what the outcome will be. It could be dangerous to be in stocks for the rest of the week, or it could be dangerous to be in cash if stocks explode to the upside, so there is a lot at stake. Even economists and analysts probably don't know what to do, so for most of us, during a week like this, it is basically a coin flip where some will win, and some will lose.

The rally in January may be irritating the Fed as they have strived to slow down the economy / jobs market in an effort to combat inflation. Not that the stock market is the economy, but clearly a giant rally to start the new year while the unemployment rate is near all time lows has got to have the Fed scratching their heads, so how could they come out and dismiss the concerns over inflation? Yes, CPI and other numbers have come down to ease inflation off their scare levels, but inflation is not an on / off switch. If ignored, it can come back as quickly as it faded. The Fed knows this and is using the infamous 1970's inflationary market example as their roadmap. That probably means they will remain hawkish, but again, what do I know? I haven't even flipped a coin yet.

Seasonality may not mean much at this juncture with so many catalysts on the brink of being unleashed, but here is the February seasonality calendar. Today is the Fed meeting and by the close stocks could move quite a bit. The major earnings releases after the bell on Thursday won't impact Thursday's market, but rather Friday's, and we also get the January jobs report on Friday as well. So we have three big days ahead of us, all three of which have good historical records. The end of the month... not so much.

Chart provided courtesy of

But everyone knows this information, so is that why stocks were up yesterday? Will we get a sell the news reaction to this buy the rumor rally? That could happen today or, as we have seen before, the market could applaud the Fed today, then dump tomorrow. Stay nimble.

The S&P 500 (C-fund) made its highest close of 2023 yesterday to end the month. It hasn't broken out yet like some of the other charts, but this isn't really a market leader. The inverted head and shoulders pattern looks encouraging, but sometimes, not typically, the H&S pattern will come back down to test the head first, which would be below 3900. But it could also churn inside that shoulder for a while, if the Fed and the earnings don't break it out in one direction or the other.

The Nasdaq has come a long way this month and it's probably due for a pause, although the bears are getting squeezed and any more upside may get the rest of them. There was a false breakout on this chart with Monday's sell off and it did peak and reverse at the 200-day EMA, so it is possible that this is a rally killer area. But even if it does pull back, that October December double low looks like a possible solid bottom.

The DWCPF (S-fund) broke out last week, dipped but held on Monday, and tacked on more yesterday, so this looks pretty good as it trades above all of its important moving averages. This can be a market leader so, despite being overbought after the big rally, this looks encouraging and it would take a major failure to turn this ship back around. I suppose that is possible if the Fed throws water on the rally.

EFA (I-fund) was up but it its has been moving sideways since the negative reversal on January 18. The dollar is at the point where it is either about to break down, or form a low and rally, and that probably means we will see an opposite move here in the EFA.

The Yield on the 10-year Treasury continues to carve out a head and shoulders pattern, which typically leads to an eventually breakdown. Since bond prices move counter to yields, this could be a good sign for BND, bonds, and the F-fund, which has been forming a bull flag in January.

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

Tom Crowley

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S&P500 (C Fund) (delayed)

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DWCPF (S Fund) (delayed)

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EFA (I Fund) (delayed)

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BND (F Fund) (delayed)

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