The bears finally showed some teeth on Friday as the indices took a hit with some minor technical damage done to some charts. The losses were not distributed equitably as the larger stocks held up better than the small, and the international stocks took a beating as the dollar rallied sharply. The Dow ended the day down 120-points or 0.67%, with the S&P losing almost 1%, small caps shed 1.6%, and the I-fund plummeted 2.9%.
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The recent Brexit polls shows 55% now in favor of Britain leaving the Euro zone, and that spooked markets on Friday. Many still believe it will not happen, but apparently the market had not priced in the possibility despite how close the polls are. The vote takes place on June 23.
On Wednesday of this week the Fed will announce their decision on interest rates at the FOMC meeting so expect some fireworks. We have become accustomed to the Fed helping the market so can they do it again or are they out of options? Many expect rates hikes this year but June seems to be off the table after that jobs report. I still have my doubts that they will do anything before the election so I would say we get one hike this year in December, but what do I know?
Over the weekend we obviously saw a heinous terror attack in Florida which could put more pressure on stocks to start the week, and it will be a test to see how willing the dip buyers are to jump back in.
On Wednesday of this week the Fed will announce their decision on interest rates at the FOMC meeting so expect some fireworks. We have become accustomed to the Fed helping the market so can they do it again or are they out of options? Many expect rates hikes this year but June seems to be off the table after that jobs report. I still have my doubts that they will do anything before the election so I would say we get one hike this year in December, but what do I know?
Over the weekend we obviously saw a heinous terror attack in Florida which could put more pressure on stocks to start the week, and it will be a test to see how willing the dip buyers are to jump back in.
The SPY (S&P 500 / C-Fund) gapped down below the old breakout point, potentially penciling in a failed breakout, but after just one day it's tough to call. The 20-day EMA held as you would want to see in a strong market. It's really too early to say what this is. As of Friday's close there was a minor breakdown but technically the S&P is OK. That could change in the coming days and that will be the test.
The weekly chart shows the failed breakout last week as the head and shoulders will have to wait longer for a breakout to the upside. Whether the right shoulder gets filled in again remains to be seen, but that's kind of what happened in the left shoulder.
Looking back to a long-term weekly chart you can see that the S&P may be in a very important spot. There's a couple of parallel trading channels with upper resistance and two levels of support. The bottom level was only tested during a couple of corrections and right now it is testing the middle support line where most pullbacks found support.
Here's a closer look at the blue box above showing it is still above the middle support line after successfully testing it and the 50-week moving average back in May.
The DWCPF (S-fund) fell toward the 20-day EMA and managed to close above the April high so the losses were stiff on Friday, but so far no major technical damage has been done. There is an open gap above that may get some attention in the near future, but the dip buyers will have to be willing and able.
The Dow Transportation Index is back below the 200-day EMA after three closes above it last week. It is still above the 50-day EMA after briefly falling below it on Friday.
The EFA (I-fund) took the brunt of the sell-off on Friday with a 2.9% loss. The dollar rallied which magnified the international markets' losses. One open gap was filled during the selling on Friday (blue) and there are three fairly significant open gaps on the chart that should be considered potential targets in the future. Two above and one below.
The dollar rallied and we knew that large gap was not going to go unattended. The question is whether it will get filled, and if it does, will the top of the gap act as resistance?
The AGG (Bonds / F-fund) was up on Friday, probably more of a safety play, but yields continue to drift lower (and bond prices higher) since that weak jobs report.
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Tom Crowley
Posted daily at TSP Talk - Market Commentary
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