The New Year start with new highs in some indices at the opening bell, but things quickly got away from the bulls and there was steady bout of selling into the early afternoon before things stabilized. The Dow, which was positive at the open, ended the day down 383-points, which was 450 points off the high of the day, but also 342 points off the low. The losses were similar in many indices and it looks like they all found support in some key areas on the charts.
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Whether it was delayed selling for tax purposes, more rebalancing after the end of year window dressing from money mangers, or just a sell off that is setting the tone for 2021, it may be too early to know. We've talked about the "as goes January" tendency, and how the first few days in January can often be predictive of the entire month. Well, that means 2021 may have some weight on its shoulders.
However, the last time we had a big loss on the first trading day in January was in 2016. That year the S&P 500 was down sharply into mid-February before bottoming, went negative again in June, and was basically flat on the year heading into in early November before a post-election rally. So, the last time we started a year like yesterday, the market struggled for about 10 months.
I posted this chart yesterday and watching the overnight futures on Sunday night, I figured it was going to break that pattern, but like on the first trading day in January 2005, a new high was made and then the selling began, so this is still very much in play.
Internally, the numbers weren't horrible considering the big losses, and the Nasdaq actually saw more advancing shares than declining. So the jury may be still out on how serious this pullback might get. There's enough evidence on each side of the argument to make this a tough call, no matter who you are.
Today is the Georgia run off election and I assume that means we won't see results until after the market closes this evening, and with tomorrow's presidential election certification and political rally in D.C. going on, Wednesday could be an interesting day for stocks.
The general consensus is that if the democrats win in Georgia, stimulus may increase, but so could corporate and capital gains taxes. If the republicans win, both are less likely to happen.
Administrative Notes:
We have an annual subscription sale going on through Friday for our premium services. Even if you have an existing annual subscription, you will be able to add another year at a 25% discount, and monthly subscriptions can convert to annual to get this discount. More on that can be found here.
The 2021 "Guess the Dow" contest for forum members is going on now and we'll accept guesses until 5 PM ET on Sunday January 10. The winner gets a $100 Amazon e-gift card. More here:
The S&P 500 (C-fund) rallied to start the day, made a new all-time high, then was free falling for several hours before finding support at the lower end of that F-flag. It closed back above the 20-day EMA after a brief break below it. Could that be the low for this dip? Maybe, but that is still an F-flag and they do tend to breakdown, so it wouldn't surprise me if it's testing the 50-day EMA before the end of the month.
The DWCPF (small caps / S-fund) also briefly fell below its 20-day EMA, something it hadn't done in two months, and it did manage to close above it again. There was some technical damage done here when it fell through the rising trading channel last week, which is possibly a second break depending how you draw your support lines, but if that 20-day EMA can hold, the bulls will remain in charge.
I don't think I am talking about the dollar enough recently because it has really been getting hammered for months and it's having a positive impact on anything sold in dollars, particular overseas markets. But that may not always be the case. Eventually a weak dollar may come back to hurt the market. Support is holding on the EFA, but being tested here now.
The Dow Transportation Index took a big hit on Monday, holding onto most of those midday losses into the close, but it did manage to close just above the 50-day EMA. It looks like that 50 EMA needs to hold because the 200-day EMA is a long way down. We've seen a series of mini bear flags break down recently.
The High Yield Corporate Bonds did what stocks did - made a new high, then flopped over and found support.
BND (Bonds / F-fund) pulled back, which I found interesting on day like yesterday for stocks, but it held at the support from the fairly clean rising trading channel.
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
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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Whether it was delayed selling for tax purposes, more rebalancing after the end of year window dressing from money mangers, or just a sell off that is setting the tone for 2021, it may be too early to know. We've talked about the "as goes January" tendency, and how the first few days in January can often be predictive of the entire month. Well, that means 2021 may have some weight on its shoulders.
However, the last time we had a big loss on the first trading day in January was in 2016. That year the S&P 500 was down sharply into mid-February before bottoming, went negative again in June, and was basically flat on the year heading into in early November before a post-election rally. So, the last time we started a year like yesterday, the market struggled for about 10 months.
I posted this chart yesterday and watching the overnight futures on Sunday night, I figured it was going to break that pattern, but like on the first trading day in January 2005, a new high was made and then the selling began, so this is still very much in play.
Internally, the numbers weren't horrible considering the big losses, and the Nasdaq actually saw more advancing shares than declining. So the jury may be still out on how serious this pullback might get. There's enough evidence on each side of the argument to make this a tough call, no matter who you are.
Today is the Georgia run off election and I assume that means we won't see results until after the market closes this evening, and with tomorrow's presidential election certification and political rally in D.C. going on, Wednesday could be an interesting day for stocks.
The general consensus is that if the democrats win in Georgia, stimulus may increase, but so could corporate and capital gains taxes. If the republicans win, both are less likely to happen.
Administrative Notes:
We have an annual subscription sale going on through Friday for our premium services. Even if you have an existing annual subscription, you will be able to add another year at a 25% discount, and monthly subscriptions can convert to annual to get this discount. More on that can be found here.
The 2021 "Guess the Dow" contest for forum members is going on now and we'll accept guesses until 5 PM ET on Sunday January 10. The winner gets a $100 Amazon e-gift card. More here:
The S&P 500 (C-fund) rallied to start the day, made a new all-time high, then was free falling for several hours before finding support at the lower end of that F-flag. It closed back above the 20-day EMA after a brief break below it. Could that be the low for this dip? Maybe, but that is still an F-flag and they do tend to breakdown, so it wouldn't surprise me if it's testing the 50-day EMA before the end of the month.
The DWCPF (small caps / S-fund) also briefly fell below its 20-day EMA, something it hadn't done in two months, and it did manage to close above it again. There was some technical damage done here when it fell through the rising trading channel last week, which is possibly a second break depending how you draw your support lines, but if that 20-day EMA can hold, the bulls will remain in charge.
I don't think I am talking about the dollar enough recently because it has really been getting hammered for months and it's having a positive impact on anything sold in dollars, particular overseas markets. But that may not always be the case. Eventually a weak dollar may come back to hurt the market. Support is holding on the EFA, but being tested here now.
The Dow Transportation Index took a big hit on Monday, holding onto most of those midday losses into the close, but it did manage to close just above the 50-day EMA. It looks like that 50 EMA needs to hold because the 200-day EMA is a long way down. We've seen a series of mini bear flags break down recently.
The High Yield Corporate Bonds did what stocks did - made a new high, then flopped over and found support.
BND (Bonds / F-fund) pulled back, which I found interesting on day like yesterday for stocks, but it held at the support from the fairly clean rising trading channel.
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
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.
