TSP Talk - The bears bite back as inflation concerns rise - Blogs (2024)

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, 05-01-2024 at 01:11 AM (585 Views)

Stocks dished out another Turnaround Tuesday as the relief rally off the recent lows is now in jeopardy. The Dow lost 570-points and the market took no prisoners as large and small caps alike got clobbered. Rising yields and a higher dollar put the pressure on, but it was more inflationary data that triggered it and got the ball rolling down hill for stocks.

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Admin Note: We sent alerts out to some premium services members yesterday. The email alerts went out without a hitch, but several subscribers were telling me that they did not receive the text message alert. I looked into it, and unbeknownst to me, the text service was having issues. It would have been nice if I knew although I'm not sure what I could have done. The service tells me that it should be a temporary issue so I can only hope they'll be getting that fixed. So sorry for the inconvenience. Amazon reported earnings after the bell and it looked like a healthy report. That makes yesterday's shakeout more interesting. With the Fed FOMC meeting today and the market possibly set to react positively to the behemoth Amazon, should investors have any hope that May could be better? Keeping things real, Amazon was down 3.3% during Tuesday's trading day, and early in the after hours trading after reporting they are only up about 1%, so they didn't even get back the day's losses. Not great but let's see how the market reacts when the opening bell rings today. Other non-Mag 7 earnings were reported yesterday and they weren't that great either - Starbucks was down nearly 13% after hours, and AMD was down over 7%.

Then we won't know the real impact of those catalysts until today's close, and even then we have Apple earnings after Thursday's close, so it could just remain choppy and volatile with wide swings in both direction, which is redundant, I know.

As far as the charts go, yesterday's sell off did do some technical damage, but here's a quick look at the failure at resistance and the possible shift from a "V" bottom to a bear flag in the S&P 500 (C-fund), also on the S and I-fund charts as well.

The 10-year Treasury Yield and the dollar reacted first to some inflationary wage data and that sort off started the bearish ball rolling yesterday for stocks as both are flirting with new highs again. The 10-year yield bounced off the bottom of its rising trading channel (blue), and the dollar (UUP) remains in a bull flag, which is dangerous for prices if it breaks out.

The selling gained momentum in the afternoon yesterday, perhaps because of the seasonal tendency for April 30th to be bearish. Not that the seasonality charts have been working great this year - especially surrounding options weeks, but it is a 30 year tendency that should be considered to some degree. Below April you will see that May has a decent record, especially in the first week, but it also has the reputation of being the month to "sell in May and go away!"

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Inflation putting most pain on South Dakotans who make the least

Charts provided courtesy of www.sentimentrader.com

I posted this chart in early April and it did warn us that it could be a bumpy month during an election year. Unfortunately for the bulls, May also tends to struggle during election years. The good news, June through December looks quite appetizing.

OK, let's see how investors react to Amazon and the other earnings reports since yesterday's close, and more importantly, let's see what the Fed has to say. They could completely change the market direction. Of course they need a reason to do so, and yesterday's inflationary wage data probably won't help make them turn more dovish.

The S&P 500 (C-fund) broke above resistance on Monday, but failed to hold it on Tuesday so it is back in the descending channel. It filled the open gap near 5060 from last Friday on the way down, and as I mentioned above, there is now an ominous looking bear flag formed.

DWCPF (S-fund) took a 2% haircut yesterday and no matter how much investors think it is time for small caps to shine, the volatility reminds us that they can be dangerous in bearish situations. This is not a great look.

EFA (I-fund) was down 1.27%, but the late selling in US stocks may influence the price that the TSP gives the fund. It wasn't updated yet as of this writing. The bull flag on the dollar chart (UUP up above) is now helping form the bear flag here. It could still be a "V" bottom, but yesterday's action didn't help that case.

BND (Bonds / F-fund) is also dealing with a bear flag, and we got a little fake out to the upside in recent days, but here it is back below the bear flag.

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

Tom Crowley

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