Despite a move higher in yields, stocks were mostly positive yesterday, and this time small caps not only played along, they led on the upside. The S&P 500 tagged 5000 but closed a couple of points below the milestone. Earnings released after the bell yesterday weren't great but none of the names were big markets movers.
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Yesterday I wrapped up my commentary saying, "earnings after the bell last night might set up a breakout above 5000 for the S&P 500, and that's all good, but if the rest of the market doesn't start coming along for the ride, the market rally in general could run out of steam. However, those charts look good so I'm optimistic, although still nervous and not married to any position."
The S&P 500 did tag 5000 for the first time (5000.40) but it didn't close up there as the index closed on the flat side. The good news yesterday was that the small caps and Equal Weighted S&P 500 outperformed. It was just one day but this is what the market needs to happen to keep from failing up at these levels.
The Equal Weighted S&P 500 (same 500 stocks in the S&P 500) made a new all time closing high yesterday, surpassing the January 2022 high. The DWCPF (S-fund) isn't anywhere near an all time high but it had one of those big outperforming days. Again, it's just one day and it hasn't been able to follow through on this type of action for a while, but perhaps if the S&P 500 is going to stall in the 5000 area, it will have its chance.
The impressive part of the rally in those charts above was that yields were up again yesterday. Higher yields had been a strong headwind for the smaller stocks. Again, it's one day, but it's a start.
I have been saying that we have decent set up in the S, I, and F-fund charts but there are certainly no guarantees and if support fails I will have to reconsider any bullish sentiment that I may have. This next chart is an example of how a good set up can turn bad in a hurry.
1987 was a very strong year for stocks, although by the fall of 1987, we saw a very similar pattern to the current small caps chart. Here it is compared the current Russell 2000 ETF, IWM.
The rest is history as October of 1987 turned out to be a peak and the similar pattern to our current small caps' chart preceded a major market crash.
I am not expecting that at all, but it could happen and it's why when support fails, you have to be careful. I like to give breakdowns (or breakouts) 3 to 5 days to confirm the move and even in the 1987 case, selling as late as day 5 saved investors from a lot more downside movement in the days that followed.
Goldman Sachs said it took 757 days for the S&P 500 to go from 4800 to 4900, and only 15 days to go from 4900 to 5000.
The S&P 500 (C-fund) got the brief celebratory ticks above 5000 but besides that, it continues to ride up underneath the resistance line of the ascending trading channel. There's a lot of room on the downside if this wants to consolidate within the channel, but the bullish case is still intact, despite some bearish sentiment out there caused by the underperformance of the non-Mag 7 stocks. The bears may be right at any moment. But charts that start in the bottom left hand corner, and move up to the top right hand corner are bullish. I love trying to call tops and bottoms, but it isn't easy.
DWCPF (S-fund) had a great day and it poked its head above the top of the pennant / bullish looking flag. Now it has to hold that level, or at the very least stay above the bottom of the flag and the 50-day EMA, or the bears would gladly come in and pounce.
The EFA (I-fund) lagged yesterday despite a decline in the dollar. Also, many of the European markets were positive yesterday, although the UK FTSE was down, so I expected it to hold up better, but it's a funny fund that seems fickle because of the overnight trading.
BND (bonds / F-fund) was down but the bull flag is still intact and it trades above the 50-day EMA. I would prefer to see this hold at that 50-day EMA rather than test the bottom of that bull flag because stocks may have a hard time staying afloat if bonds break down (... and yields move higher.)
Thanks so much for reading! Have a great weekend!
Tom Crowley
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
Daily Market Commentary Archives
To get weekly or daily notifications when we post new commentary, sign up HERE.
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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Yesterday I wrapped up my commentary saying, "earnings after the bell last night might set up a breakout above 5000 for the S&P 500, and that's all good, but if the rest of the market doesn't start coming along for the ride, the market rally in general could run out of steam. However, those charts look good so I'm optimistic, although still nervous and not married to any position."
The S&P 500 did tag 5000 for the first time (5000.40) but it didn't close up there as the index closed on the flat side. The good news yesterday was that the small caps and Equal Weighted S&P 500 outperformed. It was just one day but this is what the market needs to happen to keep from failing up at these levels.
The Equal Weighted S&P 500 (same 500 stocks in the S&P 500) made a new all time closing high yesterday, surpassing the January 2022 high. The DWCPF (S-fund) isn't anywhere near an all time high but it had one of those big outperforming days. Again, it's just one day and it hasn't been able to follow through on this type of action for a while, but perhaps if the S&P 500 is going to stall in the 5000 area, it will have its chance.
The impressive part of the rally in those charts above was that yields were up again yesterday. Higher yields had been a strong headwind for the smaller stocks. Again, it's one day, but it's a start.
I have been saying that we have decent set up in the S, I, and F-fund charts but there are certainly no guarantees and if support fails I will have to reconsider any bullish sentiment that I may have. This next chart is an example of how a good set up can turn bad in a hurry.
1987 was a very strong year for stocks, although by the fall of 1987, we saw a very similar pattern to the current small caps chart. Here it is compared the current Russell 2000 ETF, IWM.
The rest is history as October of 1987 turned out to be a peak and the similar pattern to our current small caps' chart preceded a major market crash.
I am not expecting that at all, but it could happen and it's why when support fails, you have to be careful. I like to give breakdowns (or breakouts) 3 to 5 days to confirm the move and even in the 1987 case, selling as late as day 5 saved investors from a lot more downside movement in the days that followed.
Goldman Sachs said it took 757 days for the S&P 500 to go from 4800 to 4900, and only 15 days to go from 4900 to 5000.
The S&P 500 (C-fund) got the brief celebratory ticks above 5000 but besides that, it continues to ride up underneath the resistance line of the ascending trading channel. There's a lot of room on the downside if this wants to consolidate within the channel, but the bullish case is still intact, despite some bearish sentiment out there caused by the underperformance of the non-Mag 7 stocks. The bears may be right at any moment. But charts that start in the bottom left hand corner, and move up to the top right hand corner are bullish. I love trying to call tops and bottoms, but it isn't easy.
DWCPF (S-fund) had a great day and it poked its head above the top of the pennant / bullish looking flag. Now it has to hold that level, or at the very least stay above the bottom of the flag and the 50-day EMA, or the bears would gladly come in and pounce.
The EFA (I-fund) lagged yesterday despite a decline in the dollar. Also, many of the European markets were positive yesterday, although the UK FTSE was down, so I expected it to hold up better, but it's a funny fund that seems fickle because of the overnight trading.
BND (bonds / F-fund) was down but the bull flag is still intact and it trades above the 50-day EMA. I would prefer to see this hold at that 50-day EMA rather than test the bottom of that bull flag because stocks may have a hard time staying afloat if bonds break down (... and yields move higher.)
Thanks so much for reading! Have a great weekend!
Tom Crowley
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
Daily Market Commentary Archives
To get weekly or daily notifications when we post new commentary, sign up HERE.
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.
