Stocks could not withstand the sucker punch from Apple yesterday as we saw an across the board sell-off of 2% to 3%. Apple is a component of the Dow (-660), the S&P 500 (-2.48%), and the Nasdaq (-3.04%) so they were hit hard. Apple is not part of the small caps indexes so while the small caps did decline in sympathy with the larger indexes, the Russell 2000 lost "just" 1.3% and our S-fund fell 1.74%. And with the dollar falling sharply, the I-fund held up even better.
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It would have been almost impossible for the indexes to hold up with Apple being such a major part of the big three, so now we wonder what happens to Apple moving ahead. It actually traded in a fairly tight range after the initial decline at the open, but will investors be willing to buy it between now and their earnings report? A stalled Apple could mean a stalled stock market. The most troubling part of it may be that they are pointing at the trade war as one of the reasons for their lowered expectations this quarter. Perhaps this, combined with China's recent economic woes, will hasten a deal between the two countries.
The ISM manufacturing report came out yesterday and that was a disappointment as well, adding to the selling and the concern about the economy. That sets up an interesting day for the Fed today, who will be part of a panel with former Chairs Ben Bernanke and Janet Yellen. They all see the data, and it hasn't been as robust, so they probably will have to justify their reasoning for the two 2019 rate hikes that Powell suggested in his press conference in December.
The December Jobs report comes out this morning and estimates are looking for a gain of 175,000 jobs, an unemployment rate of 3.7%, and wages rising 0.3%. At this point I wonder is investors are looking for weak data that will move the Fed into a more dovish stance, or do they want more robust economic data? Perhaps the reaction to the ISM was a clue that it's the latter.
One interesting stat from yesterday: Only 10 more stocks made a new 52-week low yesterday, compared to the new highs on the NYSE. Compare that to the more than -1200 (over 1200 more new lows than new highs) that we saw on the 20th and 24th of December.
There were a couple of other encouraging signs yesterday as the credit market / high yield bonds were up on the day, and the price of oil was up, although it has been heavily beaten down of late.
We had waited for a holiday relief rally and it looks like the +7.4% move in the S&P 500 from the December 26 low to the high on the 28th, was all we were going to get. That's quite a run actually but compared to the losses we incurred leading up to that makes it seem minuscule in comparison.
The S&P 500 / C-fund took a drop off that flat top, as we might expect. Now there are two levels of support that will be very meaningful for the market in the coming days. That is, the December lows, and that old resistance line, which may try to hold as support. The December low is still about 4% below yesterday's close, so that would not be an insignificant loss, should it be tested.
The chart from the bear market of 2008 shows that double bottoms can still hold, but when they don't, look out! That makes any test of that 2350 area on the current chart quite meaningful. I circled that rally in September to show how we can be thrown for a fake. There was a breakdown, then an explosive rally up to the 50-day EMA that failed (perhaps it was an FOMC meeting?) before the real damage was done that year. I'm sure that spike higher got some folks leaning the wrong way.
The DWCPF (small caps / S-fund) pulled back from its flat top, but as I mentioned, it didn't lose quite as much percentage-wise. Still, -1.74% is significant.
The Dow Transportation Index was clobbered with a 3.5% loss and it may be the first to test its December low, and perhaps give us a clue to what is in store for the S&P 500.
The EFA (EAFE Index / I-fund) was down but had help from the weak dollar and outperformed the U.S. stocks. It may be trying to hold above that channel / wedge formation it broke above last week.
On the other hand, the Transports falling are not a great sign for the economy, and oil and copper prices are also an indication of the strength, or lack there of, of the economy. Oil has seen minor bounce of late, but it has been destroyed over the last few months.
And the price of copper just made a new 52-week low yesterday.
The AGG (Bonds / F-fund) continued higher as investors sold stocks and bought bonds. This is an astonishing rally with yields tanking as the Fed continues to raise rates. So the bond market may be telling the Fed that they are wrong to raise rates again.
Read more in today's TSP Talk Plus Report. We post more charts, indicators and analysis, plus discuss the allocations of the TSP and ETF Systems. For more information on how to gain access and a list of the benefits of being a subscriber, please go to: www.tsptalk.com/plus.php
Thanks for reading. Have a great weekend!
Tom Crowley
Posted daily at www.tsptalk.com/comments.php
The legal stuff: This information is for educational purposes only! This is not advice or a recommendation. We do not give investment advice. Do not act on this data. Do not buy, sell or trade the funds mentioned herein based on this information. We may trade these funds differently than discussed above. We use additional methods and strategies to determine fund positions.
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It would have been almost impossible for the indexes to hold up with Apple being such a major part of the big three, so now we wonder what happens to Apple moving ahead. It actually traded in a fairly tight range after the initial decline at the open, but will investors be willing to buy it between now and their earnings report? A stalled Apple could mean a stalled stock market. The most troubling part of it may be that they are pointing at the trade war as one of the reasons for their lowered expectations this quarter. Perhaps this, combined with China's recent economic woes, will hasten a deal between the two countries.
The ISM manufacturing report came out yesterday and that was a disappointment as well, adding to the selling and the concern about the economy. That sets up an interesting day for the Fed today, who will be part of a panel with former Chairs Ben Bernanke and Janet Yellen. They all see the data, and it hasn't been as robust, so they probably will have to justify their reasoning for the two 2019 rate hikes that Powell suggested in his press conference in December.
The December Jobs report comes out this morning and estimates are looking for a gain of 175,000 jobs, an unemployment rate of 3.7%, and wages rising 0.3%. At this point I wonder is investors are looking for weak data that will move the Fed into a more dovish stance, or do they want more robust economic data? Perhaps the reaction to the ISM was a clue that it's the latter.
One interesting stat from yesterday: Only 10 more stocks made a new 52-week low yesterday, compared to the new highs on the NYSE. Compare that to the more than -1200 (over 1200 more new lows than new highs) that we saw on the 20th and 24th of December.
There were a couple of other encouraging signs yesterday as the credit market / high yield bonds were up on the day, and the price of oil was up, although it has been heavily beaten down of late.
We had waited for a holiday relief rally and it looks like the +7.4% move in the S&P 500 from the December 26 low to the high on the 28th, was all we were going to get. That's quite a run actually but compared to the losses we incurred leading up to that makes it seem minuscule in comparison.
The S&P 500 / C-fund took a drop off that flat top, as we might expect. Now there are two levels of support that will be very meaningful for the market in the coming days. That is, the December lows, and that old resistance line, which may try to hold as support. The December low is still about 4% below yesterday's close, so that would not be an insignificant loss, should it be tested.
The chart from the bear market of 2008 shows that double bottoms can still hold, but when they don't, look out! That makes any test of that 2350 area on the current chart quite meaningful. I circled that rally in September to show how we can be thrown for a fake. There was a breakdown, then an explosive rally up to the 50-day EMA that failed (perhaps it was an FOMC meeting?) before the real damage was done that year. I'm sure that spike higher got some folks leaning the wrong way.
The DWCPF (small caps / S-fund) pulled back from its flat top, but as I mentioned, it didn't lose quite as much percentage-wise. Still, -1.74% is significant.
The Dow Transportation Index was clobbered with a 3.5% loss and it may be the first to test its December low, and perhaps give us a clue to what is in store for the S&P 500.
The EFA (EAFE Index / I-fund) was down but had help from the weak dollar and outperformed the U.S. stocks. It may be trying to hold above that channel / wedge formation it broke above last week.
On the other hand, the Transports falling are not a great sign for the economy, and oil and copper prices are also an indication of the strength, or lack there of, of the economy. Oil has seen minor bounce of late, but it has been destroyed over the last few months.
And the price of copper just made a new 52-week low yesterday.
The AGG (Bonds / F-fund) continued higher as investors sold stocks and bought bonds. This is an astonishing rally with yields tanking as the Fed continues to raise rates. So the bond market may be telling the Fed that they are wrong to raise rates again.
Read more in today's TSP Talk Plus Report. We post more charts, indicators and analysis, plus discuss the allocations of the TSP and ETF Systems. For more information on how to gain access and a list of the benefits of being a subscriber, please go to: www.tsptalk.com/plus.php
Thanks for reading. Have a great weekend!
Tom Crowley
Posted daily at www.tsptalk.com/comments.php
The legal stuff: This information is for educational purposes only! This is not advice or a recommendation. We do not give investment advice. Do not act on this data. Do not buy, sell or trade the funds mentioned herein based on this information. We may trade these funds differently than discussed above. We use additional methods and strategies to determine fund positions.
