Don't blink. You may miss the next big move. After stocks were destroyed on Wednesday, we saw a solid bounce back on Thursday. There was some selling late taking the indices off their highs, but the Dow gained over 400-points, the Nasdaq was up 200, and the S&P jumped close to 50-points - all of which gave back a big percentage of Wednesday's losses. However, before we start counting our chickens, we got some earnings, and it doesn't look good going into Friday.
[TABLE="align: center"]
[TR]
[TD="align: center"] Daily TSP Funds Return
[TABLE="align: center"]
[TR]
[TD="align: right"] [/TD]
[/TR]
[/TABLE]
[/TD]
[TD][/TD]
[TD="align: center"]
[/TD]
[/TR]
[/TABLE]
Microsoft and a couple of other companies helped fuel an oversold rally on Thursday, but after the bell it was all about the next batch of earnings and two of the big boys caved. Both Amazon and Google beat their earnings estimates handily, but both also came in light on the revenue side, and in this market environment they were getting punished after hours for doing so. Unfortunately because they are such large pieces of the major indices, the futures fell sharply giving back a big chunk of Thursday's gains.
This was a case of the charts letting us know what the fundamentals were going to be. The charts were breaking down telling us that something was amiss, and now the earnings are telling the world as the leaders failed.
The question then remains, can the market rally back without dancing with the ones that brought them? The market has been led on the upside for the last few years by the big FAANG stocks (Facebook, Apple, Amazon, Netflix, Google). What can it do now if those stocks can't rally?
When a bull market ends and a bear market flushes out the weakness, subsequent bull markets tend to lead with new names. Is this a sign that the nearly 10-year old bull market is over and we need to start looking for new leaders during a flush out bear market period?
I may be jumping the gun because we don't know how investors will react outside of the FAANG stocks, but if the rising tide of FAANG stocks lifted all boats, then what will a falling tide do?
All of this may just be the process of forming a bottom, back and forth, lower lows, testing the lows, etc., but the alternative is that we could be watching the end of the bull market and the start of a bear, and everything you did over the last 10 years may need to be adjusted.
When do we know? The media will tell you that when we're down 20% off the highs that we're in a bear market. But what good does that do you? The question we need to know now is, will we get to that point so we can protect our accounts?
Right now it looks like it. If we had another day like we saw on Thursday, on Friday, I would have said the jury is still out. But if we rollover again now, I would say prepare for the worst. We are still oversold and could bounce, but the character of the market seems to be changing.
That doesn't mean sell everything and hunker down. It means buying every 2% - 3% decline like you could have done in 2017, probably won't work now, and when you do buy you'll want to be more quick to sell to hold onto profits. The rallies can be big and beautiful in bear markets, but the gains don't hold for too long.
All that said, this data from sentimentrader.com suggests a 2nd correction should probably be bought. It makes me nervous, but bear markets are rare so maybe we're overreacting?
Chart provided courtesy of www.sentimentrader.com
The S&P 500 / C-fund is still trending lower despite Thursday's big rally. We were due for some relief and we got it but now some earnings reports threw a wrench in what looked like it could be the start of a rebound off the lows. Now we have to see how investors react in other areas of the market outside of those FAANG stocks.
The year to date chart shows that the S&P may still be in the rising trend but it is getting tested and feels tentative.
The Nasdaq 100, where all of the large tech stocks live, has clearly broken down as it trades below the 200-day EMA for the first time in a long time. Should these stocks sell-off today on yesterday's poor earnings reports, the question is whether it's just going to test the lows and hold or create another leg down.
The dollar actually made a new high for the year. We'd like to see it close above the old highs for 3 to 5 days before confirming a breakout, but if it does hold, the I-fund should continue to lag. If the breakout fails, perhaps the I-fund can lead on any relief rallies.
The High Yield Corporate Bond Fund is flirting with the 200-day EMA, which is interesting because that puts it in a much more favorable position than it was in during February's stock market correction. But can it hold here?
AGG (bonds / F-fund) was down but I'm posting the chart of the yield of the 10-year Treasury to show that it may be forming another bull flag. Bull flags to break to the upside, which would be bad news for bond prices and the F-fund.
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.
[TABLE="align: center"]
[TR]
[TD="align: center"] Daily TSP Funds Return
[TR]
[TD="align: right"] [/TD]
[/TR]
[/TABLE]
[/TD]
[TD][/TD]
[TD="align: center"]
[/TR]
[/TABLE]
Microsoft and a couple of other companies helped fuel an oversold rally on Thursday, but after the bell it was all about the next batch of earnings and two of the big boys caved. Both Amazon and Google beat their earnings estimates handily, but both also came in light on the revenue side, and in this market environment they were getting punished after hours for doing so. Unfortunately because they are such large pieces of the major indices, the futures fell sharply giving back a big chunk of Thursday's gains.
This was a case of the charts letting us know what the fundamentals were going to be. The charts were breaking down telling us that something was amiss, and now the earnings are telling the world as the leaders failed.
The question then remains, can the market rally back without dancing with the ones that brought them? The market has been led on the upside for the last few years by the big FAANG stocks (Facebook, Apple, Amazon, Netflix, Google). What can it do now if those stocks can't rally?
When a bull market ends and a bear market flushes out the weakness, subsequent bull markets tend to lead with new names. Is this a sign that the nearly 10-year old bull market is over and we need to start looking for new leaders during a flush out bear market period?
I may be jumping the gun because we don't know how investors will react outside of the FAANG stocks, but if the rising tide of FAANG stocks lifted all boats, then what will a falling tide do?
All of this may just be the process of forming a bottom, back and forth, lower lows, testing the lows, etc., but the alternative is that we could be watching the end of the bull market and the start of a bear, and everything you did over the last 10 years may need to be adjusted.
When do we know? The media will tell you that when we're down 20% off the highs that we're in a bear market. But what good does that do you? The question we need to know now is, will we get to that point so we can protect our accounts?
Right now it looks like it. If we had another day like we saw on Thursday, on Friday, I would have said the jury is still out. But if we rollover again now, I would say prepare for the worst. We are still oversold and could bounce, but the character of the market seems to be changing.
That doesn't mean sell everything and hunker down. It means buying every 2% - 3% decline like you could have done in 2017, probably won't work now, and when you do buy you'll want to be more quick to sell to hold onto profits. The rallies can be big and beautiful in bear markets, but the gains don't hold for too long.
All that said, this data from sentimentrader.com suggests a 2nd correction should probably be bought. It makes me nervous, but bear markets are rare so maybe we're overreacting?
Chart provided courtesy of www.sentimentrader.com
The S&P 500 / C-fund is still trending lower despite Thursday's big rally. We were due for some relief and we got it but now some earnings reports threw a wrench in what looked like it could be the start of a rebound off the lows. Now we have to see how investors react in other areas of the market outside of those FAANG stocks.
The year to date chart shows that the S&P may still be in the rising trend but it is getting tested and feels tentative.
The Nasdaq 100, where all of the large tech stocks live, has clearly broken down as it trades below the 200-day EMA for the first time in a long time. Should these stocks sell-off today on yesterday's poor earnings reports, the question is whether it's just going to test the lows and hold or create another leg down.
The dollar actually made a new high for the year. We'd like to see it close above the old highs for 3 to 5 days before confirming a breakout, but if it does hold, the I-fund should continue to lag. If the breakout fails, perhaps the I-fund can lead on any relief rallies.
The High Yield Corporate Bond Fund is flirting with the 200-day EMA, which is interesting because that puts it in a much more favorable position than it was in during February's stock market correction. But can it hold here?
AGG (bonds / F-fund) was down but I'm posting the chart of the yield of the 10-year Treasury to show that it may be forming another bull flag. Bull flags to break to the upside, which would be bad news for bond prices and the F-fund.
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.
