Stocks plummeted at the open yesterday, just after Federal Reserve Bank of St. Louis President James Bullard said he believes that the central bank will start raising short-term interest rates at the end of the first quarter of next year. But the market rallied back from the morning lows and the Dow went from an early 120-point loss, to a modest 21-point loss by the close.
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The TSP stock funds all finished close to break-even and strangely, the F-fund rallied on the news as yields actually went down?
The SPY (S&P 500 / C-fund) has produced a series of reversal days so what we see in the morning may not be how the S&P 500 closes. To me, a lot of back and forth action usually means the market may be looking for a new direction. The problem with that theory is that it has done the opposite several times in the last few months. Each of these prior stretches of back and forth / reversal days (red boxes) produced a break to the upside.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
The Wilshire 4500 (S-Fund) reversed nicely yesterday for a second straight day, and it continues to hang around the old March highs. My theory has been that it needs more of a consolidation before it can breakout with any authority. With the holiday coming up next week, we could get a little fake-out breakout on light volume - but I'd be wary of it. The action after a holiday could reverse it. We'll see. It's always a little tricky around the holidays, but most holiday trading has a positive bias.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
The Nasdaq broke below a rising parallel trading channel this week (red) but has since produced two positive reversal days. Positive reversal days usually generate positive follow-through, but this back and forth action may not be over yet and if it continues, the next back and forth direction would be down.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
A little follow-through on the German DAX that we talked about on Thursday. It did break down and fill that open gap, but it also rebounded strongly off the 50-day moving average when U.S. stocks started to recover. That 9745 area looks like strong support and may hold, but if it breaks... look out.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
Here's the July seasonality chart. It looks a little choppy but over all there a lot more green than red.
Chart provided courtesy of www.sentimentrader.com, analysis by TSP Talk
Despite Bullard's belief of higher rates in early 2015, bond yields were down and bond prices moved higher on Thursday. There was a bit of a negative reversal day in the IEF and that rising resistance line (red) is still in the way. It has closed above the trading range (blue box) for a second day. This looks bullish, but if it is going to come back down, it will probably start today or Monday.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
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Thanks for reading! Have a great weekend!
Tom Crowley
Posted daily at TSP Talk Market Commentary
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