Well, it happened. We understood that it could happen, but we weren't sure if it would, or if it would - when it would happen. The US got involved directly with Iran. Now what? Since the writing has been on the wall, have the stock and bond markets been pricing this in already? Will any short-term negative knee-jerk reactions be an opportunity to buy, or will any relief rally, now that it's a done deal, be a selling opportunity? Or, does it really matter to the market at all?
Headlines come and go and like a Fed meeting, an inflation report, or a jobs report Friday, it will move the market, but for the most part, unless there is a fundamental change in the economy and / or monetary policy, the stock market is going to go back to where it was heading.
The charts and indicators are always there to help us put that picture together and rarely does the picture change over night.
If we see a chart formation like a double top, then it is likely that the news of the day may force a pullback to some degree. If we see a bullish formation like bull flag, then the news may help push that flag toward it's breakout. If we see a bear flag, big news may trigger the inevitable breakdown.
This isn't 100% but I have been doing this for a long time, and it is certainly the tendency.
Friday was a Triple Witching expiration day and trading volume always spikes as options and futures contracts expire and investors have to sell the old options / contracts, and buy the new ones. It has a tenancy for a lot of pushing and pulling depending on where the bulk of those options and futures contracts are sitting. The prices can get manipulated by those larger holding institutions to keep certain options "in the money", if you will.
But once the Monday after an expiration Friday comes around, that is all behind us and the market will go back toward where it was going. Often it is a change in direction, or perhaps a consolidation ends and a concrete direction is presented to us.
The S&P 500 (C-fund) has been moving sideways for the last month as it consolidates or digests the powerful rally off the April lows. But notice the March expiration day, or I should say, the day after (red line off March 24.) The market was heading lower in late February and into early March. Stocks started to move sideways after the March 10 decline through that expiration day, and then the downside resumed after the expiration Friday, so in that case it wasn't a change of direction, but rather the end of a consolidation before the downside resumed.
So we head into this post expiration Friday following a one month consolidation of a market that was moving higher. I have my suspicions in the direction it will go, but up or down, I'd be surprised if the sideways consolidation goes on very much longer.
The open gap near 5800 could be a target on any negative knee-jerk reaction, and that is almost 200-points below Friday's close, but the 20-day moving average is also there as support with the May peak also providing support. You can't always trust the futures heading into Monday morning, but not surprisingly, they opened moderately lower (about 35-points or -0.63% on the S&P) so we'll see if the dip buyers are still interested or if the market needs to see that gap get filled.
The 10-year Treasury Yield was down sharply on Friday and here it is testing that key support line again. If this can break below support I think the Fed is going to have a more difficult time justifying not lowering rates at its nest meeting in July. There is no sign of inflation from the tariffs yet, and I read that 70% of the inflation in the last year over year inflation data was coming from housing and auto insurance, and both of them have cooled down quite a bit recently. So the housing market is suffering from higher rates, and the labor market is slowing, so many believe the time to cut will be the July meeting and waiting unit September would put the Fed behind the curve again. So, if we see 4.3% or lower here, the Fed may be forced to make a move in July.
The dollar has been bouncing off its double bottom but now it is facing that 50-day EMA which has held as resistance since it broke down below it in February. The 200-day average is up by 28, and that is another possibility, but here near 27.50 will be a good test of whether this is just a relief rally, or if the dollar is bottoming.
Not surprisingly, the price of crude oil was up when the futures opened on Sunday night after the attacks over the weekend, and Iran is blocking the Strait of Hormuz, which connects the Persian Gulf to the Arabian Sea and it could disrupt 20% of the global oil supply. But it is still at an important resistance area that has not officially changed. The futures were trading near 76.20 last night. Last week's intraday high in oil was also just above 76.
Being a post expiration week, something will likely change this week. If I go chart by chart I have to lean on the bullish side despite the news and the concern over oil prices.
The DWCPF / S-fund held onto the support of its rising wedge-like pattern. Any kind of shake out caused by the news headlines could send it to the 50-day average for a test, but watch the closing prices rather than the intraday shake out prices.
The ACWX (I-fund) finally started to break down last week following a strong rally in the dollar. However, as I pointed out in the UUP chart up top, there is resistance in the area on the dollar. Widening its channel would not be a bad thing for this chart since support had gotten so thin.
BND (bonds / F-fund) has been rallying as yields have been slipping lower. It has been holding above that red channel for several days now so this breakout has some merit. The action in the Middle East should actually help bonds.
Thanks so much for reading! We'll see you back here tomorrow.
Tom Crowley
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
Questions, comments, or issues with today's commentary? We can discuss it in the Forum.
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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 may use additional methods and strategies to determine fund positions.
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Headlines come and go and like a Fed meeting, an inflation report, or a jobs report Friday, it will move the market, but for the most part, unless there is a fundamental change in the economy and / or monetary policy, the stock market is going to go back to where it was heading.
The charts and indicators are always there to help us put that picture together and rarely does the picture change over night.
If we see a chart formation like a double top, then it is likely that the news of the day may force a pullback to some degree. If we see a bullish formation like bull flag, then the news may help push that flag toward it's breakout. If we see a bear flag, big news may trigger the inevitable breakdown.
This isn't 100% but I have been doing this for a long time, and it is certainly the tendency.
Friday was a Triple Witching expiration day and trading volume always spikes as options and futures contracts expire and investors have to sell the old options / contracts, and buy the new ones. It has a tenancy for a lot of pushing and pulling depending on where the bulk of those options and futures contracts are sitting. The prices can get manipulated by those larger holding institutions to keep certain options "in the money", if you will.
But once the Monday after an expiration Friday comes around, that is all behind us and the market will go back toward where it was going. Often it is a change in direction, or perhaps a consolidation ends and a concrete direction is presented to us.
The S&P 500 (C-fund) has been moving sideways for the last month as it consolidates or digests the powerful rally off the April lows. But notice the March expiration day, or I should say, the day after (red line off March 24.) The market was heading lower in late February and into early March. Stocks started to move sideways after the March 10 decline through that expiration day, and then the downside resumed after the expiration Friday, so in that case it wasn't a change of direction, but rather the end of a consolidation before the downside resumed.
So we head into this post expiration Friday following a one month consolidation of a market that was moving higher. I have my suspicions in the direction it will go, but up or down, I'd be surprised if the sideways consolidation goes on very much longer.
The open gap near 5800 could be a target on any negative knee-jerk reaction, and that is almost 200-points below Friday's close, but the 20-day moving average is also there as support with the May peak also providing support. You can't always trust the futures heading into Monday morning, but not surprisingly, they opened moderately lower (about 35-points or -0.63% on the S&P) so we'll see if the dip buyers are still interested or if the market needs to see that gap get filled.
The 10-year Treasury Yield was down sharply on Friday and here it is testing that key support line again. If this can break below support I think the Fed is going to have a more difficult time justifying not lowering rates at its nest meeting in July. There is no sign of inflation from the tariffs yet, and I read that 70% of the inflation in the last year over year inflation data was coming from housing and auto insurance, and both of them have cooled down quite a bit recently. So the housing market is suffering from higher rates, and the labor market is slowing, so many believe the time to cut will be the July meeting and waiting unit September would put the Fed behind the curve again. So, if we see 4.3% or lower here, the Fed may be forced to make a move in July.
The dollar has been bouncing off its double bottom but now it is facing that 50-day EMA which has held as resistance since it broke down below it in February. The 200-day average is up by 28, and that is another possibility, but here near 27.50 will be a good test of whether this is just a relief rally, or if the dollar is bottoming.
Not surprisingly, the price of crude oil was up when the futures opened on Sunday night after the attacks over the weekend, and Iran is blocking the Strait of Hormuz, which connects the Persian Gulf to the Arabian Sea and it could disrupt 20% of the global oil supply. But it is still at an important resistance area that has not officially changed. The futures were trading near 76.20 last night. Last week's intraday high in oil was also just above 76.
Being a post expiration week, something will likely change this week. If I go chart by chart I have to lean on the bullish side despite the news and the concern over oil prices.
The DWCPF / S-fund held onto the support of its rising wedge-like pattern. Any kind of shake out caused by the news headlines could send it to the 50-day average for a test, but watch the closing prices rather than the intraday shake out prices.
The ACWX (I-fund) finally started to break down last week following a strong rally in the dollar. However, as I pointed out in the UUP chart up top, there is resistance in the area on the dollar. Widening its channel would not be a bad thing for this chart since support had gotten so thin.
BND (bonds / F-fund) has been rallying as yields have been slipping lower. It has been holding above that red channel for several days now so this breakout has some merit. The action in the Middle East should actually help bonds.
Thanks so much for reading! We'll see you back here tomorrow.
Tom Crowley
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
Questions, comments, or issues with today's commentary? We can discuss it in the Forum.
Daily Market Commentary Archives
For more info our other premium services, please go here... www.tsptalk.com/premiums.php
To get weekly or daily notifications when we post new commentary, sign up HERE.
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 may use additional methods and strategies to determine fund positions.
