After a major turnaround Tuesday with a wide outside negative reversal day, we came into Wednesday and somewhat surprisingly the market opened higher. The indices tried to stabilize with some respectable early gains, but by late afternoon the tide had turned and everything fell apart. The Dow dropped 381-points with most indices falling 1% or more.[TABLE="align: center"]
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We've been talking about this being a more "normal" market with ups and down, pullbacks, rallies, corrections, etc., but over the last year or so, it has been anything but that. To put things in perspective, there were more 1% moves in the indices in February, up or down, than we saw in all of 2017, and there were only had 19 trading days in February this year. Of those 19 days, there were 15 triple digit moves in the Dow. Volatility is back!
The losses yesterday means the Dow snapped a 9-month winning steak and the S&P 500 (C-fund) had its first monthly loss since October of 2016, or 16 months.
The goldilocks action is now turning into a question of whether the economy is over heating putting inflationary and interest rate hike pressure on the market or, as some of the recent very short-term economic data may be suggesting, we may be seeing a possible slow down in the economy. It's probably too early to say, but that may be the tug-o-war going on over the last week.
I don't know if the recent drop in oil prices, as well as the price of copper, are related to a bump in the dollar or if it is related to that short-term weaker economic data, but I see that the stock market may be following that price of oil. Or is it the other way around? This is something I will be watching closer.
What many said started this recent downturn was Federal Chairman Jerome Powell's testimony to congress on Tuesday. Well, guess what? He speaks again today. Perhaps he'll try to ease concerns after the 2-day sell-off, but that's not really his job.
The S&P 500 / C-fund pulled back toward the 50-day EMA after the bull flag (red) breakout failed. The blue lines may represent some kind of bear flag, and now that it closed below that flag, the 50-day EMA becomes a fairly major test.
The small caps / S-fund broke below its bull flag and the 50-day EMA. As charts go, this one is deteriorating. 3-closes below the 50-day EMA would make it an official breakdown, but the way the indices are moving, it could potentially be a rough 2 more days.
The Transportation Index is in the same situation - its a breakdown in multiple ways.
The Nasdaq 100, which led the rally on the upside, is also showing some "normal" action as double tops tend to be followed by pullbacks before new highs are eventually tested again. Open gaps, moving averages, or support lines would be the obvious initial targets for any pullback.
The EAFE Index / I-fund looks a lot like the Transports and small cap charts. It seems the obvious conclusion would be a test of the February lows, but is that too easy to be true?
The AGG (bonds / F-fund) rallied nicely yesterday, and as TommyIV mentioned in his blog post yesterday, is the F-fund due for some kind of relief rally off of longer-term support? It seems to be trying to break the short term descending trading channel.
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. We'll see you back here tomorrow.
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.
[TR]
[TD="align: center"] Daily TSP Funds Return
[TR]
[TD="align: right"][/TD]
[/TR]
[/TABLE]
[/TD]
[TD]
[/TD]
[TD="align: center"]
[/TR]
[/TABLE]
We've been talking about this being a more "normal" market with ups and down, pullbacks, rallies, corrections, etc., but over the last year or so, it has been anything but that. To put things in perspective, there were more 1% moves in the indices in February, up or down, than we saw in all of 2017, and there were only had 19 trading days in February this year. Of those 19 days, there were 15 triple digit moves in the Dow. Volatility is back!
The losses yesterday means the Dow snapped a 9-month winning steak and the S&P 500 (C-fund) had its first monthly loss since October of 2016, or 16 months.
The goldilocks action is now turning into a question of whether the economy is over heating putting inflationary and interest rate hike pressure on the market or, as some of the recent very short-term economic data may be suggesting, we may be seeing a possible slow down in the economy. It's probably too early to say, but that may be the tug-o-war going on over the last week.
I don't know if the recent drop in oil prices, as well as the price of copper, are related to a bump in the dollar or if it is related to that short-term weaker economic data, but I see that the stock market may be following that price of oil. Or is it the other way around? This is something I will be watching closer.
What many said started this recent downturn was Federal Chairman Jerome Powell's testimony to congress on Tuesday. Well, guess what? He speaks again today. Perhaps he'll try to ease concerns after the 2-day sell-off, but that's not really his job.
The S&P 500 / C-fund pulled back toward the 50-day EMA after the bull flag (red) breakout failed. The blue lines may represent some kind of bear flag, and now that it closed below that flag, the 50-day EMA becomes a fairly major test.
The small caps / S-fund broke below its bull flag and the 50-day EMA. As charts go, this one is deteriorating. 3-closes below the 50-day EMA would make it an official breakdown, but the way the indices are moving, it could potentially be a rough 2 more days.
The Transportation Index is in the same situation - its a breakdown in multiple ways.
The Nasdaq 100, which led the rally on the upside, is also showing some "normal" action as double tops tend to be followed by pullbacks before new highs are eventually tested again. Open gaps, moving averages, or support lines would be the obvious initial targets for any pullback.
The EAFE Index / I-fund looks a lot like the Transports and small cap charts. It seems the obvious conclusion would be a test of the February lows, but is that too easy to be true?
The AGG (bonds / F-fund) rallied nicely yesterday, and as TommyIV mentioned in his blog post yesterday, is the F-fund due for some kind of relief rally off of longer-term support? It seems to be trying to break the short term descending trading channel.
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. We'll see you back here tomorrow.
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.
