TSP Talk Blog

The back and forth pattern finally broke on Tuesday after we got a second consecutive day of gains for the first time since March 2 and 3. The Dow gained 316-points but it was one of the laggards as small caps put up another crooked number, this one a gain at +2.17%. Bonds were down sharply as yields rallied and the bond market seems to be embracing the Fed's next interest rate hike this afternoon. There were certainly some technical improvements in the charts, but many of them are not out of the woods yet.

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The stock market seems to have put the banking issues behind it, but is that premature? The "fix" is reminiscent of when Bears Sterns went under in early 2008.

March 14, 2008 - JPMorgan, backed by the Federal Reserve, provides an undisclosed amount of emergency financing to Bear Stearns. Bear says its liquidity position had deteriorated dramatically in the previous 24 hours. The stock plunges to close at $30.85. The average price target: $93.62.

March 16 & 17, 2008 - JPMorgan agrees on March 16 to buy Bear for $236 million, or $2 a share, representing just over 1 percent of the firm’s value at its record high close just 14 months earlier. The deal essentially marks the end of Bear’s 85-year run as an independent securities firm.

Here's the full timeline, and below is the chart. You can see that it was just the beginning for the financial crisis of 2008.




Perhaps these recent bank closure are isolated, but is everything back to normal? If it was, the Fed wouldn't be considering NOT raising rates. They probably will raise their Fed Funds Rate to by 0.25% today but before the banking issues it was very likely going to be 0.50%.

The stock market is acting better, but is everything OK? Maybe it is, but again, remember Bear Sterns. The S&P 500 rallied for two months from that March 2008 debacle into the middle of May before things fell apart again. That was probably giving big money managers time to dump stocks while mom and pop were buying back in during that two month rally. Is that the phase we will enter now? I'd like to catch a two month rally, but it wouldn't surprise me if they pulled the rug out from under the market again at some point this year.

This is the chart of the S&P 500 over the last month. Yesterday it closed at 4003. The day prior to the SVB Bank closing on March 9 it closed at 3992. It's like it never happened.




How about the tech heavy Nasdaq 100? Not only is it well above the March 8th close before SVB went under, but it is now about where it was at the January highs.




The damage was being done to the small caps as these indices are full of small regional banks where the issues erupted. We saw a bounce off the lows recently, but it is still down quite a bit since the March 8th close.




The weekly chart of the S&P 500 may give us more clues, but it is still murky. The chart managed to get back above that long-term red descending resistance line coming off the January 2022 peak this week already, but the 4050 - 4100 area has its own resistance problems.




The set up looks pretty good on that chart with the higher high and higher low above the December lows, but the Fed will have to answer some tough questions today, and it could set the tone, bullish or bearish, for the next leg up or down.

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The S&P 500 (C-fund) gapped up and held onto the morning gains, closing above the 200-day EMA for the first time since before the SVB melt down. There is a lot of resistance in the area coming off the recent peaks, and the old broken support line off the December lows. It would be difficult to argue with the bullish case if this does get above 4040 or so, then 4100. But until then it won't surprise me if the bears give it another try on the downside.




The DWCPF (S-fund) put together a nice 2-day rally but those gains were just a small portion of the losses taken since early March peak and break down. Lots of resistance between 1650 and 1670, and even more a little further up. This is either going to roll back over, or rally hard. Like everyone else, I wish I knew for sure.




The EFA (I-fund) may be the canary in the coal mine as it did move above the resistance that I am worried about on the US stock index charts. It also moved above its 50-day EMA again after holding at the 200-day EMA, which is one thing that the US charts did not do. There are two good sized open gaps below that may need to get filled before going up much further, and that resistance at 70 (and falling) is also a concern.




BND (bonds / F-fund) is in the head and shoulders pattern and if that right shoulder gets filled down to the neckline, it would mean yields are moving higher. I wonder how the stock market would feel about that?




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

Tom Crowley



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