TSP Talk Blog

Despite Amazon falling 4% after their earnings, the market and the bulls were in a good mood in the final trading day of the month on Friday. The Dow jumped 272-points ending a mixed month for stocks. Earnings have been fairly good from the companies that matter most and that higher tide seems to have lifted all boats last week. Stocks seem to want to go higher, but now we head into a new month and sometimes a new month can mean a new direction. Will it be a year that lives up to the saying, "sell in May and go away", or will the bulls keep the pressure on?

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April was an interesting month with the S-fund losing 2.2% while the C and I funds were up 1.6% and 2.9% respectively. Bonds also had a positive month as the F-fund added 0.6% in April.

We've seen some internal weakness with those broader small cap stocks that have struggled compared to the S&P 500 which is led by, and heavily weighted with, big tech companies. Even the equal weighted S&P 500 Index (same 500 stocks as the S&P 500) is up about 3% this year while the tech heavy weighted S&P 500 itself is up more than 9%.

The small caps have been a victim of those regional banks recently, and this weekend's headlines weren't great: "US regulators were rushing to resolve the First Republic Bank crisis Sunday after a midday deadline passed for submitting final bids to take over the struggling lender."

I've struggled with trying to figure out if the internal weakness is a warning sign for the market as a whole, or if the Microsofts and Googles of the world can continue to do the heavy lifting for the indices while the average stock underperforms.

This week the behemoth Apple reports on Thursday after the bell, but that seems like an eternity away when considering that the Fed will be raising interest rates on Wednesday, and more importantly, give us a clue about their future plans for monetary policy, and the market action should be quite volatile before Apple gives us their results. They are probably the top dog as far as anticipated earnings and they can reiterate the strength we've seen from the other FAANG / MAGA companies, or they could pop the balloon.

After a big 2-day rally, the 10-year yield fell sharply on Friday with the inflationary PCE Prices and spending reports not showing too much to be concerned about. That could help keep the Fed at bay as the market hopes for a soft landing to the economic weakness that we've experienced since interest rates have moved up.



The dollar has been a little more resilient lately after its decline off the early March highs. The inverted F-flag on that chart may be suggesting a breakout to the upside, and that could shake up the stock market, although F-flags can linger for quite some time so it's also possible that it falls back to the bottom of the flag which would likely give the stock market continued buoyancy.

The recent two-day rally looks familiar. We've see several of these big 2-3 rallies. Some held on. Some reversed back down quickly this year, so I'm not reading too much into that. It's not a bad looking chart but if anything, a post earnings week rally is often followed by some profit taking.




The market leading Dow Transportation Index has participated in the two day rally after a major breakdown earlier in the week. That breakdown below key support sets up the possibility of the old support turning into stubborn resistance, which is plentiful in that 14,250 area.



Same for the small caps / S-fund where the DWCPF is also battling back from its bear flag breakdown. 1650 - 1660 will be an interesting test. Can the bulls quickly recapture the broken support or will the bears pounce on that resistance area?

May starts the weaker six month period of the year for stocks, and as I said above, there is an old saying on Wall Street - sell in May and go away. November through April are the stronger six months of the year and that seemed to work out for the bulls over going back to November of last year.


Chart provided courtesy of www.sentimentrader.com

This week we get the Fed's FOMC Meeting and likely an interest rate hike on Wednesday, Apple reports earnings on Thursday, and then we get the April jobs report on Friday.

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The S&P 500 (C-fund) looks a lot better than the broader market indices, thanks to big tech. This looks like large inverted head and shoulders pattern, which do tend to break to the upside, although there is a less common outcome that would have it test the middle of the head again, and there is an open gap right in that area. The PMO indicator, which had crossed below its moving average earlier in the week, just ticked right back above it. Those crossovers often lead to short-term oversold bounces, so we should know this week if that's what last week's rally on Thursday and Friday was all about.




The DWCPF (S-fund) is lagging but rebounded late last week, only to run into some old support that may now be resistance. An open gap was nearly filled on Friday, and the resistance above that is obvious.




The EFA (I-fund) is holding up quite well with the old breakout area above 72.50 providing support now. Of course we have all of those open gaps below so it's tough to get too comfortable buy it up here.




BND (Bonds / F-fund) was up sharply on Friday and with open gaps all over the vicinity, some choppy action isn't a surprise. The question is whether the bearish small head and shoulders pattern in blue is a precursor to a decline and breakdown below the moving averages (and a test of that large inverted H&S head), or will the larger inverted head and shoulders in red keep the bullish story alive for bonds and the F-fund?




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

Tom Crowley



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