TSP Talk Blog

The news out there has been rough for markets yet the indices have remained buoyant. On a typical Friday with bank failure announcements being a major concern, I would not expect a lot of buying before the weekend, but that's exactly what happened after stocks opened lower. The Dow closed near the high of the day with a 132-point gain. Bonds were up and the I-fund was a victim of the late US rally and some adjusting of Thursday's elevated price.

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After a sell off in early 2022, the stock market, in this case the S&P 500, spent the last year chopping around between 3500 and 4200 and the the consensus is that a big move is going to come out of this long consolidation. I don't know what the bullish case is, but looking at the long-term weekly chart, it does look feasible that this could break upward. As long as this stays above the old descending green resistance line that it recaptured last week, the bulls have a case. However, the fundamentals with the potential recession and current banking issues would suggest a break to the downside, and it would only take a decline down below that 3900 area again to give the bears the technical analysis edge again.




If the fundamental argument for the bullish case is that the Fed may be ending their interest rate hikes soon and potentially cutting rates later this year or next, then they are probably betting on a recessionary environment, as the inverted 2/10 year yield curve has been suggesting for almost a year now. And, historically, the stock market has never put in a bottom BEFORE a recession starts, meaning the October low is vulnerable to getting taken out at some point if we do see recessionary data. So, that bullish case is flawed.

The other case that the bulls have, as RevShark tweeted recently, is price action. Price action is a serious consideration because we don't always know why stocks are moving in one direction or the other, but here's what RevShark said:

"It is always important to defer to the price action but I wish the bulls could come up with a decent narrative to support the positive action. I’ve not seen one other than there are too many bears."

As for the bearish case, what else can we make of this chart -- unprecedented money outflows from the banks? I don't know where that money is going, but it doesn't look like a sound formula for the financial system.




Some of the market leaders broke down last week, although Friday's positive reversal action made it less conclusive. The Dow Transportation Index and the Russell 2000 small cap index both broke down below bear flags last week, although they bounce to close just barely below the flag. This has got to be considered a warning sign. However...



... the Nasdaq 100, which contains the likes of Amazon, Apple, Google, Microsoft etc., is within about 1% of a new high for the year. This double top formation is indicative a possible short-term pullback, but this is bullish action and dips here will likely be bought.

So will we have a tale of two markets in 2023 where tech stocks are rallying and financials are falling, splitting indices? If that's the case then the C-fund would be the preferred fund over the small caps, but it is very rare indeed when these two funds move in the opposite directions, so it doesn't seem likely to happen for any length of time. The question is, which will lead the other?

The futures opened higher on Sunday evening, which is typical after a Friday positive reversal day, but it may not be indicative of the how the day closes.

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The S&P 500 was in the process of breaking down from the recent rising support line, but the late rally and close near the highs of the day kept it above that support and the 200-day simple average (orange). It is still below the key 50-day EMA, and whether it ends up above or below that average by the end of the week may determine which way this chart ultimately breaks.




The DWCPF (S-fund) clearly broke down from that bear flag on Thursday and Friday morning, but the late rally on Friday brought it right back up to the bottom of the flag. Still below it, but positive reversals do tend to lead to more short term upside action, so we'll see what Monday brings. Besides the bear flag, this remains below the old support of that blue channel, and with those alarmingly high bank withdrawals we mentioned above, this small bank heavy index does not appear to be set up for much success.




The EFA (I-fund) was down but closed near the highs of the day after filling in one of the open gaps (blue.) There is another open gap down by 67.50 which may be a target, but as of Friday the lower support line on the red trading channel is still holding.




BND (bonds / F-fund) also filled in a big open gap on Friday (blue) while nearly touching the prior high. There is a large gap looming down near 72 that will eventually be in the picture, but when? This has been alternating with big gains in January, big losses in February, and another rally in March. March comes to an end at the end of the week, so what will April bring, now that is is near a double top?




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

Tom Crowley



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