Stocks gapped open lower on Tuesday and the indices were taking a beating in early trading, but we saw a low put in at about 10 AM ET and a grind higher for the next several hours. A late dip kept the Dow and S&P from turning positive and pushed the indices to about 0.5% losses, but overall it was "almost" a classic turnaround Tuesday. A positive close would have been better, but the bulls may have something to build upon, if they have the fortitude to go after the recently rejuvenated bears. The Dow ended the day down 126-points or -0.50%.
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There were disappointing earnings from Caterpillar and 3M to set the tone, but it's China that was the major culprit yesterday.
China's stock market has been tumbling for a while now and on Monday night (Tuesday in China), after a solid 2-day rally the prior two days, their Shanghai Index fell down another 2.3%. They were saying that they are not concerned about their market (which is down 32% from this year's highs) nor do they worry about trade war and tariffs, and that may have been what sent a shockwave in the U.S. overnight futures Monday night since China seems to be willing to let it get worse rather than looking for a quick solution. So we may have a little game of chicken with tariffs going on now.
The close and the last half hour of trading were a little heavy yesterday in U.S. stocks and that was likely due to concerns about what the Shanghai Index would do on Wednesday morning when it reopened.
But overall, the positive reversal of the early Tuesday 550 point losses was bullish and barring any disaster in the Asian markets overnight on Tuesday, we could see more buying at some point today. But it is earnings season and investors are in no mood for bad news. Yes, they may buy in an effort not to miss the rebound, but their fingers won't be far from that sell button in case something negative presents itself.
We could certainly see a rebound from these low levels, and that would be normal, and that's actually normal in both bull or bear markets after a sell-off like we've had in October, but the jury is still out on whether the market is healthy or not. Rallies may still have to be sold, but even in bear markets the rallies can be quite large.
The World Series indicator. I heard from Art Cashen yesterday, that there is apparently some quirky tendency for historically volatile October to hit its lows just before the first game of the World Series, which started last night. I guess we'll see if that works this year.
The S&P 500 / C-fund gave us a test of the recent lows yesterday and the rebound off the intraday lows made it a successful test so far. I put boxes around the prior action after a spike down low and the two with the red boxes show that the S&P did not necessarily go straight up after that spike down. The one in May did, but not the two surrounding it. There were a few days of back and forth before they did end up going higher, so we may still have some choppy action to deal with.
The action may feel a little like 2007 when no one was talking about a recession, but the market was showing early signs of something happening in the second half of the year.
First there was a test of the 200-day EMA in March of '07, but new highs came shortly afterward. Another summer dip took the S&P below the 200-day EMA, but again another rebound to new highs - where it then peaked. That was October of 2007. Another decline afterward, another rally, but a lower high, and there you have a trend change toward the end of '07, and 2008 was history. But we didn't go from a bull market into a straight down bear. It evolved over a year. Maybe 2019 will be one of those years?
Compare that chart to the 2018 chart and if there are any similarities, it would be more toward the middle of 2007 in the chart above, and so I think we could get some decent rallies before any bear market truly kicks in. We're just getting some warning signs now that something may be amiss, but be on the lookout for something more negative over then next 6 - 12 months. If we shoot up to new highs again like we saw in October of 2007, it will surprise folks and get people jumping back in, but that may be the red flag to trigger the top.
I don't want to pretend that I know what is going to happen, because I don't, but it is so rare, maybe 1987 was the exception, for a market to go from all-time highs like we had just this month, right into a bear market without decent relief rallies along the way.
The DWCPF (S-fund) made a lower low yesterday, as did the Transports and the I-fund, and it did bounce back with the S&P 500, but it is still below the earlier October lows. Yes it's due for a relief rally but this chart is in worse shape than the S&P's chart.
Here's the chart of the Shanghai Index after Tuesday's action (by the time you read this Wednesday's action will have started or completed in China). We talked several months ago about whether the global market will start to take notice of this poor action, and until recently they haven't. Yesterday's sell-off was being blamed on it so you never know when the catalysts will present themselves, even when they're right under our noses.
AGG (bonds / F-fund) rallied early as stocks were tanking, but reversed back down when the bounced back, but held onto a modest gain for the day.
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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[TD="align: center"] Daily TSP Funds Return
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[TD]
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[/TR]
[/TABLE]
There were disappointing earnings from Caterpillar and 3M to set the tone, but it's China that was the major culprit yesterday.
China's stock market has been tumbling for a while now and on Monday night (Tuesday in China), after a solid 2-day rally the prior two days, their Shanghai Index fell down another 2.3%. They were saying that they are not concerned about their market (which is down 32% from this year's highs) nor do they worry about trade war and tariffs, and that may have been what sent a shockwave in the U.S. overnight futures Monday night since China seems to be willing to let it get worse rather than looking for a quick solution. So we may have a little game of chicken with tariffs going on now.
The close and the last half hour of trading were a little heavy yesterday in U.S. stocks and that was likely due to concerns about what the Shanghai Index would do on Wednesday morning when it reopened.
But overall, the positive reversal of the early Tuesday 550 point losses was bullish and barring any disaster in the Asian markets overnight on Tuesday, we could see more buying at some point today. But it is earnings season and investors are in no mood for bad news. Yes, they may buy in an effort not to miss the rebound, but their fingers won't be far from that sell button in case something negative presents itself.
We could certainly see a rebound from these low levels, and that would be normal, and that's actually normal in both bull or bear markets after a sell-off like we've had in October, but the jury is still out on whether the market is healthy or not. Rallies may still have to be sold, but even in bear markets the rallies can be quite large.
The World Series indicator. I heard from Art Cashen yesterday, that there is apparently some quirky tendency for historically volatile October to hit its lows just before the first game of the World Series, which started last night. I guess we'll see if that works this year.
The S&P 500 / C-fund gave us a test of the recent lows yesterday and the rebound off the intraday lows made it a successful test so far. I put boxes around the prior action after a spike down low and the two with the red boxes show that the S&P did not necessarily go straight up after that spike down. The one in May did, but not the two surrounding it. There were a few days of back and forth before they did end up going higher, so we may still have some choppy action to deal with.
The action may feel a little like 2007 when no one was talking about a recession, but the market was showing early signs of something happening in the second half of the year.
First there was a test of the 200-day EMA in March of '07, but new highs came shortly afterward. Another summer dip took the S&P below the 200-day EMA, but again another rebound to new highs - where it then peaked. That was October of 2007. Another decline afterward, another rally, but a lower high, and there you have a trend change toward the end of '07, and 2008 was history. But we didn't go from a bull market into a straight down bear. It evolved over a year. Maybe 2019 will be one of those years?
Compare that chart to the 2018 chart and if there are any similarities, it would be more toward the middle of 2007 in the chart above, and so I think we could get some decent rallies before any bear market truly kicks in. We're just getting some warning signs now that something may be amiss, but be on the lookout for something more negative over then next 6 - 12 months. If we shoot up to new highs again like we saw in October of 2007, it will surprise folks and get people jumping back in, but that may be the red flag to trigger the top.
I don't want to pretend that I know what is going to happen, because I don't, but it is so rare, maybe 1987 was the exception, for a market to go from all-time highs like we had just this month, right into a bear market without decent relief rallies along the way.
The DWCPF (S-fund) made a lower low yesterday, as did the Transports and the I-fund, and it did bounce back with the S&P 500, but it is still below the earlier October lows. Yes it's due for a relief rally but this chart is in worse shape than the S&P's chart.
Here's the chart of the Shanghai Index after Tuesday's action (by the time you read this Wednesday's action will have started or completed in China). We talked several months ago about whether the global market will start to take notice of this poor action, and until recently they haven't. Yesterday's sell-off was being blamed on it so you never know when the catalysts will present themselves, even when they're right under our noses.
AGG (bonds / F-fund) rallied early as stocks were tanking, but reversed back down when the bounced back, but held onto a modest gain for the day.
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.
