opened flat to slightly lower on Tuesday, but then the disparity between the indices started to show itself again. The Dow and S&P 500, and to a lesser extent, the Nasdaq, started to rally, while the small caps and the Transports headed south. The Dow ended the day up 123-points, but that masked the broader weakness that we saw in U.S. stocks. The I-fund was also hit hard on Tuesday.
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Not only did the trade deal made with Canada magnifying the recent disparity between the large caps and the small caps, but there are more financial stocks in the Russell 2000 small cap index than in the S&P 500, and the financial sector has been struggling because of the flattening yield curve. Morgan Stanley actually made a new 52-week low yesterday. The financials did get a nice bounce off the lows yesterday and may be trying to find support at the 200-day EMA, but look what has happened in the last week or so.
With the financial flat yesterday, the weakness in small caps may have more to do with putting money, which may have been in small caps while the trade negotiations played out, back into large cap companies, which were held back by the negotiations, and are now getting some attention again. Like the financials trying to hold at the 200-day EMA, the small cap Russell 2000 chart is also trying to hold onto some long term support. Rising interest rates aren't doing small caps any favors either.
We get the September Jobs Report on Friday morning and estimates are looking for a gain of about 185,000 jobs and an unemployment rate of 3.8%
The S&P 500 / C-fund was basically flat on the day but remained in the rising channel and is still close to challenging all time highs. There is some level of caution here however since there is an usually high percentage of stocks making 52-week lows in the NYSE Index while the S&P is this close to a high.
The small caps (S-fund) continue to get hit hard, but it is difficult to get too bearish on them when we've seen them bounce back so often. The current pattern resembles the bull flag formation we saw in July that uncharacteristically broke down before it resumed its upside move. One day it may not bounce back so easily and how quickly it does or does not make it back above the 50-day EMA may be the difference this time. The last couple of times it got this far below the 50-day EMA, it tested the 200-day EMA before coming back. That was in February and April.
The Dow Transportation Index broke down from a small bear flag yesterday and found some support at the 50-day EMA. This 50-day EMA really looks like it needs to hold otherwise the next level of support could be the 200-day EMA.
The EAFE Index had a bad day on Tuesday. The dollar was up, but nothing significant, so this was just heavy selling in the European markets. The EFA ETF fund doesn't show this same loss, -1.92%. It (EFA) was only down 0.51%. I don't have the updated price of the I-fund yet but I assume it will be somewhere in between the two, but closer to -0.51%.
The AGG (bonds) ran up to the 50/200 day EMAs and stopped again. There is a lot of resistance there and with the talk of inflation getting more prevalent, it seems like the bond market has obstacles in the way as interest rates are more likely going higher. Sure, bonds could rally if stocks really sell-off, but other than that, there's not a big reason for yields to move lower, or bond prices to move higher.
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.
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Not only did the trade deal made with Canada magnifying the recent disparity between the large caps and the small caps, but there are more financial stocks in the Russell 2000 small cap index than in the S&P 500, and the financial sector has been struggling because of the flattening yield curve. Morgan Stanley actually made a new 52-week low yesterday. The financials did get a nice bounce off the lows yesterday and may be trying to find support at the 200-day EMA, but look what has happened in the last week or so.
With the financial flat yesterday, the weakness in small caps may have more to do with putting money, which may have been in small caps while the trade negotiations played out, back into large cap companies, which were held back by the negotiations, and are now getting some attention again. Like the financials trying to hold at the 200-day EMA, the small cap Russell 2000 chart is also trying to hold onto some long term support. Rising interest rates aren't doing small caps any favors either.
We get the September Jobs Report on Friday morning and estimates are looking for a gain of about 185,000 jobs and an unemployment rate of 3.8%
The S&P 500 / C-fund was basically flat on the day but remained in the rising channel and is still close to challenging all time highs. There is some level of caution here however since there is an usually high percentage of stocks making 52-week lows in the NYSE Index while the S&P is this close to a high.
The small caps (S-fund) continue to get hit hard, but it is difficult to get too bearish on them when we've seen them bounce back so often. The current pattern resembles the bull flag formation we saw in July that uncharacteristically broke down before it resumed its upside move. One day it may not bounce back so easily and how quickly it does or does not make it back above the 50-day EMA may be the difference this time. The last couple of times it got this far below the 50-day EMA, it tested the 200-day EMA before coming back. That was in February and April.
The Dow Transportation Index broke down from a small bear flag yesterday and found some support at the 50-day EMA. This 50-day EMA really looks like it needs to hold otherwise the next level of support could be the 200-day EMA.
The EAFE Index had a bad day on Tuesday. The dollar was up, but nothing significant, so this was just heavy selling in the European markets. The EFA ETF fund doesn't show this same loss, -1.92%. It (EFA) was only down 0.51%. I don't have the updated price of the I-fund yet but I assume it will be somewhere in between the two, but closer to -0.51%.
The AGG (bonds) ran up to the 50/200 day EMAs and stopped again. There is a lot of resistance there and with the talk of inflation getting more prevalent, it seems like the bond market has obstacles in the way as interest rates are more likely going higher. Sure, bonds could rally if stocks really sell-off, but other than that, there's not a big reason for yields to move lower, or bond prices to move higher.
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.
