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TSP Talk: Stocks tumble into important jobs report

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Stocks imploded on Thursday, the day before today's key employment report. Whenever we see a big move before a key report I also think of two possibilities: Did the report data get leaked somehow, or was the influential money on Wall Street trying to shake out mom and pop investors before the report - because it may be better than most think? The sell off also had a lot to do with the crash-like action in the financial stocks after SVB regional bank fell 60% on the day. The Dow lost 544-points with losses near 2% in many of the major indices. Bonds were up as yields were down, which you would have thought would help stocks.

Daily TSP Funds Return
Also yesterday, the Biden administration proposed doubling the capital gains tax on wealthy investors in their budget proposal. That may not have sat well on a day that stocks were struggling anyway, but it's obviously not inked in yet so it's a little early to react so dramatically.

The action in the financial / bank stocks was harsh, and that's a bad sign since as goes the banks, generally the broader market goes as well, and this does not look good.

Here is a comparison between the financial ETF (XLF) and the S&P 500, and they basically go hand in hand although the XLF broke down weeks before the recent break in the S&P 500.

The yield on the 10-year Treasury was down and it is trying to hold onto that 3.9% area, while the stock market is likely rooting for a breakdown here. Ironically, bank stocks tend to do better when yields are higher.

With the important jobs report due out an hour before the opening bell today, we could either get a melt-down, or a major bounce back. But the technical damage is being done to the charts no matter what comes next.

As for the jobs report, the prior report came in ridiculously hot with over 500K jobs being added in January, which was 170% above the estimate. That was while many companies were laying off employees so it didn't make much sense, but it did kill the 2023 rally because of the inflationary implications. I'd say the chances of another report like that are near nil, but if I'm wrong the market will be in big trouble. Best case for the 200+ jobs expected tomorrow might be to see something in the mid 100K area, with downward revisions to prior reports. It's an odd thing for the bulls to hope for, but it's all about the Fed and interest rates right now.

Admin Note: Next week could be troublesome for me as I have been called for jury duty starting Monday morning. I have to call on Sunday night to find out if they'll need me, but because the courts are 90 miles away from where I live, I had to make reservations at a hotel and decided to stay there a few days either way. The problem comes if I do have to serve on a jury. I will really be hampered during the day, not only because I won't be able to watch the market, but I may not be able to send alerts if any of our services require it.

TommyIV, who writes our weekly Wrap Up, may fill in for a day or two writing my daily commentary, but it is not likely that he will be able to send alerts as he works on his Last Look reports around that same time. I can only hope for the best.

The S&P 500 (C-fund) got slammed by almost 2% yesterday leading into today's jobs report. The chart is starting to deteriorate although a large bull flag is still a possibility. The bad news is that now we see a possible head and shoulders pattern formed, and if that breaks down it could turn out to be a major peak for the S&P.

The DWCPF (S-fund) had been holding up so well with very distinct bullish set ups, but yesterday may have changed all of that. 1720 "should" have held in a perfect technical analysis world, but yesterday sent it tumbling through support like a hot knife through butter. There's an open gap near 1640, with a filled gap from back in December in the same area, so it looks like a meaningful spot. The bull flag isn't dead, but it's severely wounded.

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Thanks so much for reading. Have a great weekend!

Tom Crowley

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