Stocks tried to hold up on Friday but as the day wore on, the buyers disappeared and the indices drifted lower all afternoon. The Dow lagged losing over 1% while the broader indices held up a little better.
Volume was below average so there was no panic, and that could be a good thing, or bad. Panic selling tends to lead to snap back rallies but the lack of volume could also mean the selling was not done by the money managers, which may be considered the smart money.
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We are seeing some signs that the economy is slowing down but in the recent past that meant the Fed would leave interest rates alone. Unfortunately, that's not the talk lately. They do want to raise rates, but do they have to will to do so, particularly in an election year?
And speaking of election years, this time of year during a presidential election year tends to be fairly weak up unit, about Memorial Day
weekend.
And, as you can see above, the next several days in May don't have the best record either. (These are dates, not trading days as we have shown in the past.)
This does not paint the best picture for stocks in the short-term but while seasonality can be a good indicator to add to your analysis, it is not a primary indicator - except around Christmas and New Years. The charts and indicators are telling their own stories, and unfortunately they are not all in agreement.
The S&P 500 (C-Fund) is in such an interesting position right now. It is sitting right near the 50-day EMA after forming the right shoulder of a head and shoulders pattern. At the risk of repeating myself, H&S patterns are generally continuation patterns. So, an H&S in an uptrend tends to break upward, and an H&S in a downtrend tends to break down. This one happens to be on the small side coming after a big rally so it may be that it will break to the upside, although even if it does, it may want to test the 200-day EMA first. A large H&S could be a topping formation, and that's the risk here.
On the weekly chart there is a large head and shoulders pattern (red) which would be bearish, but we could also argue that the blue circles represent an inverted head and shoulders pattern and it would be forming the right shoulder now, which would be bullish. Confused yet?
The DWCPF (S-fund) is flirting with the support of the 50-day EMA, and after that support gets very thin.
The Dow Transportation Index looks quite weak, and being the market leader, is a big concern. The 50-day EMA never even made it back above the 200-day EMA during the rally so some technicians may say that this index never got out of its bear market that began in 2015.
The Nasdaq 100 has also been flashing major a warning sign after failing at the head test of the large head and shoulders pattern (not shown.) It also failed recently at the major moving averages. What the bulls may be hanging their hats on is the rising support line and the February high acting as support.
The EFA (I-fund) already broke down from its rising support line and that open gap we've had our eyes on is a very possible downside target near 56.0.
The AGG (Bonds / F-fund) made another closing high as investors moved to safely during Friday's sell-off in stocks.
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.
Volume was below average so there was no panic, and that could be a good thing, or bad. Panic selling tends to lead to snap back rallies but the lack of volume could also mean the selling was not done by the money managers, which may be considered the smart money.
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The futures opened sharply lower on Sunday evening, which is not a surprise after what happened on Friday. The momentum is down, but don't forget that Monday morning gaps are usually emotionally driven and gaps tend to get filled rather quickly so I'll be more interested in where the indices are around noon ET than where they open.We are seeing some signs that the economy is slowing down but in the recent past that meant the Fed would leave interest rates alone. Unfortunately, that's not the talk lately. They do want to raise rates, but do they have to will to do so, particularly in an election year?
And speaking of election years, this time of year during a presidential election year tends to be fairly weak up unit, about Memorial Day
weekend.
And, as you can see above, the next several days in May don't have the best record either. (These are dates, not trading days as we have shown in the past.)
This does not paint the best picture for stocks in the short-term but while seasonality can be a good indicator to add to your analysis, it is not a primary indicator - except around Christmas and New Years. The charts and indicators are telling their own stories, and unfortunately they are not all in agreement.
The S&P 500 (C-Fund) is in such an interesting position right now. It is sitting right near the 50-day EMA after forming the right shoulder of a head and shoulders pattern. At the risk of repeating myself, H&S patterns are generally continuation patterns. So, an H&S in an uptrend tends to break upward, and an H&S in a downtrend tends to break down. This one happens to be on the small side coming after a big rally so it may be that it will break to the upside, although even if it does, it may want to test the 200-day EMA first. A large H&S could be a topping formation, and that's the risk here.
On the weekly chart there is a large head and shoulders pattern (red) which would be bearish, but we could also argue that the blue circles represent an inverted head and shoulders pattern and it would be forming the right shoulder now, which would be bullish. Confused yet?
The DWCPF (S-fund) is flirting with the support of the 50-day EMA, and after that support gets very thin.
The Dow Transportation Index looks quite weak, and being the market leader, is a big concern. The 50-day EMA never even made it back above the 200-day EMA during the rally so some technicians may say that this index never got out of its bear market that began in 2015.
The Nasdaq 100 has also been flashing major a warning sign after failing at the head test of the large head and shoulders pattern (not shown.) It also failed recently at the major moving averages. What the bulls may be hanging their hats on is the rising support line and the February high acting as support.
The EFA (I-fund) already broke down from its rising support line and that open gap we've had our eyes on is a very possible downside target near 56.0.
The AGG (Bonds / F-fund) made another closing high as investors moved to safely during Friday's sell-off in stocks.
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.
