New month, new direction? Not yet. Stocks were quite choppy yesterday, bouncing between positive and negative and closing mixed but mostly negative without any sign of the recent consolidation concluding. The Dow managed to close with a small gain, and small caps were flat, but the S&P 500 and Nasdaq were down moderately. The dollar was down sharply again lifting the I-fund to a nice gain, taking the lead in the TSP funds to start March.
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The phenomenon of getting the market to reverse course when a new month starts is real, but not a certainty, and it doesn't always happen on day one of a new month. Sometimes it starts a couple of days before a month ends, and sometimes it's a day or two into the new month. The lines below represent the first trading day of each month for the last year or so, and there's a pretty clear trend of reversals, but again, not always. We don't have to go far back to see the last one as January's rally came to an abrupt end and reversed in early February. By the way, you'll see in the index charts down below that the first two trading days in February were very strong. Stocks didn't reverse down until day three.
The yield on the 10-year Treasury hit 4% yesterday before backing off slightly. This was a likely catalyst for the selling in the Nasdaq particularly, but that is looking like an "F-flag", and they tend to eventually break to the downside, although some F-flags can go on for a while before they do break.
The dollar was down sharply yesterday and it made its way back below its 200-day moving average. It also fell below the February rising support line. New month, new direction here?
The yield curve is still inverted and it is basically at the most inverted level as it has been since it first inverted early last year. This is supposed to suggest a recession is due but so far no real signs of one with first quarter GDP estimates still over 2%. And if the bond market was sensing a recession, we probably wouldn't be seeing bond yields at new highs.
The indices have been at or near make or break levels for a week or two and it's likely that the recent consolidation will resolve itself fairly soon. Up or down... I wish I knew. They'll probably move in the same direction, but small caps looks ready to move higher while the S&P 500 is showing signs of breaking down.
The S&P 500 (C-fund) retested the recent low from last Friday and held yesterday, but it is still in that neighborhood. The consolidation is 6 trading days old - about half of the length of the one we saw in December. However, being the start of a new month, I think we could see a resolution pretty quickly, although we don't really have many catalysts until next week with the jobs report, and then the following week when the next CPI reading comes in again.
The DWCPF (S-fund) was flat and remains precariously above a bevy of support and in that large bull flag. Flag formations haven't worked very well since the bear market started, but if it does break out as bull flags have always tended to do, the upside technical target would be well above the early February highs. A move below 1700 would likely break the flag.
The EFA (I-fund) had a big day with the help of that weak dollar, and it made some technical progress above the short-term resistance line. Meanwhile the dollar broke below support, so there's a good set up here if the US market can behave.
BND (bonds / F-fund) was down sharply on that push higher in yields yesterday, but it is still testing the neckline of that head and shoulders pattern. This is a bearish pattern but a short-term relief rally to create a right shoulder wouldn't be a surprise here.
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
For more info our other premium services, please go here... www.tsptalk.com/premiums.html
To get weekly or daily notifications when we post new commentary, sign up HERE.
Thanks so much 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="width: 338, align: center"] Daily TSP Funds Return
[TR]
[TD="align: right"][/TD]
[/TR]
[/TABLE]
[/TD]
[/TR]
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The phenomenon of getting the market to reverse course when a new month starts is real, but not a certainty, and it doesn't always happen on day one of a new month. Sometimes it starts a couple of days before a month ends, and sometimes it's a day or two into the new month. The lines below represent the first trading day of each month for the last year or so, and there's a pretty clear trend of reversals, but again, not always. We don't have to go far back to see the last one as January's rally came to an abrupt end and reversed in early February. By the way, you'll see in the index charts down below that the first two trading days in February were very strong. Stocks didn't reverse down until day three.
The yield on the 10-year Treasury hit 4% yesterday before backing off slightly. This was a likely catalyst for the selling in the Nasdaq particularly, but that is looking like an "F-flag", and they tend to eventually break to the downside, although some F-flags can go on for a while before they do break.
The dollar was down sharply yesterday and it made its way back below its 200-day moving average. It also fell below the February rising support line. New month, new direction here?
The yield curve is still inverted and it is basically at the most inverted level as it has been since it first inverted early last year. This is supposed to suggest a recession is due but so far no real signs of one with first quarter GDP estimates still over 2%. And if the bond market was sensing a recession, we probably wouldn't be seeing bond yields at new highs.
The indices have been at or near make or break levels for a week or two and it's likely that the recent consolidation will resolve itself fairly soon. Up or down... I wish I knew. They'll probably move in the same direction, but small caps looks ready to move higher while the S&P 500 is showing signs of breaking down.
The S&P 500 (C-fund) retested the recent low from last Friday and held yesterday, but it is still in that neighborhood. The consolidation is 6 trading days old - about half of the length of the one we saw in December. However, being the start of a new month, I think we could see a resolution pretty quickly, although we don't really have many catalysts until next week with the jobs report, and then the following week when the next CPI reading comes in again.
The DWCPF (S-fund) was flat and remains precariously above a bevy of support and in that large bull flag. Flag formations haven't worked very well since the bear market started, but if it does break out as bull flags have always tended to do, the upside technical target would be well above the early February highs. A move below 1700 would likely break the flag.
The EFA (I-fund) had a big day with the help of that weak dollar, and it made some technical progress above the short-term resistance line. Meanwhile the dollar broke below support, so there's a good set up here if the US market can behave.
BND (bonds / F-fund) was down sharply on that push higher in yields yesterday, but it is still testing the neckline of that head and shoulders pattern. This is a bearish pattern but a short-term relief rally to create a right shoulder wouldn't be a surprise here.
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
For more info our other premium services, please go here... www.tsptalk.com/premiums.html
To get weekly or daily notifications when we post new commentary, sign up HERE.
Thanks so much 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.
