Stocks were down on Thursday but they put up a pretty good fight to close well of the morning lows. The trading was on very light volume which makes the positive reversal less impressive than otherwise it could have been. The Dow was basically flat at -minus 8-points while the boarder indices took bigger hits with small caps lagging again. Bonds and the dollar were up but settled off their highs leaving Friday's options expiration day with a real head scratcher. Which way does this want to go as we head into next week's holiday week?
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Some Fed members are still talking hawkish and and talking, and that continues to put pressure on stocks as yields moved higher yesterday. James Bullard was one of the culprits yesterday as they seem to be trying to tell the public to stop thinking they are going to slow down the interest rate cuts, despite what some rear-view mirror economic numbers say.
There's no doubt that the inflation numbers look better, so why are they being so stubbornly hawkish with rates and rhetoric? I'm guessing they either know something the rest of us don't know - OR, they are wrong -- again. Don't forget, they were telling us in the fall of 2021 that inflation was "transitory", which Allianz advisor Mohamed El-Erian called the "worst inflation call in the history" of the Fed.
The FTX scandal is likely going to be a bigger deal than we've been hearing and it reminds me of 2008. Bear markets tend to bring excesses, failures, and scandals into the light. Like Bear Sterns or Lehman failing during the 2008 bear market, or the Madoff scandal, when you turn on the light the cockroaches will scatter, and the light has been turned on FTX so we'll see how this unfolds. If you read into it, it turns out FTX may be one of the biggest scandals of the bunch.
As for the market action, yesterday's early weakness led to some late buying, and with the holiday next week it's tough to gauge what it really means. Trading volume was very light and on the S&P 500 as it was the lowest trading volume since the summer doldrums days. A high volume reversal means something. I'm not sure yesterday's action did much more than try to fill in the gap that was opened at the opening bell yesterday, although there was strong support where it bottomed yesterday.
The yield on the 10-year Treasury was up, but like everything else, flipped from the opening levels. It found resistance at the 50-day EMA so that is now three closes below that average. However, it is back within that parallel trading channel which looks like a bullish flag. This is a tough call.
The dollar's demise looks more convincing since the CPI report sent it reeling last week. There is a "however" here as well and that is the massive open gaps above which could draw it higher in the short-term.
The Dow Transportation Index has been quite volatile lately. It has led the market higher of the lows but this week we saw back to back big losses off the recent peak. It did manage to turn an early 3% loss into a 1% loss on Thursday creating what looks like a positive reversal above the 200-day EMA, but it did fall below other key support near 14250. And again, trading volume was particularly light.
The price of oil was down with help from the rally in the dollar and it certainly looks like yesterday's low is a key level, otherwise it could be down testing the September lows again. That's great for the consumer and gas prices, but it could be a tell that the interest rate hikes are having an impact on the economy.
Here are the charts of Thanksgiving and Christmas during the last two meaningfully negative years for the stock market. In 2008 there was a big rally leading into Thanksgiving and weakness afterward. In 2018 the market declined leading into Thanksgiving and rallied afterward. But both had some mostly bearish action in December until after Christmas.
All this tells me is that the Santa Claus rally could be trumped by tax selling that gets magnified in December in bearish years. So if you're expecting an end of year rally from here, you may need a back up plan.
Today is an options expiration day so you never know what to expect as traders and money managers unload expiring contracts so there could be some funny business going on to hit price targets.
The S&P 500 (C-fund) opened near the lows of the day but fought back in the afternoon to close near the highs of the day. That was an attempt to fill in the morning open gap, which it basically did. Trading volume was very light making it less than an impressive reversal day, but a reversal none-the-less. The gaps above (~4070) and below (~3820) are vying for attention but the downside found some support near 3900, which seems to be a meaningful area of support and resistance. It's in a rising trading channel, which I had deemed a bear flag, but it has been a lot more resilient than a bear flag should be. The 200-day EMA has held as resistance on the upside and we probably need to respect that until it is broken.
The DWCPF (small caps / S-fund) didn't quite get yesterday morning open gap filled so there is now an open gap above and below yesterday's trading range. The trend is up, but again it has bear flag qualities. It just hasn't acted much like a bear flag yet.
The EFA (I-fund) was flat on the day and it may be running out of steam after a pretty large rally - the largest of the year as it is stretched above resistance. That's a pretty good sign of strength, but it may need to rest before going any higher. The recent sharp decline in the dollar has helped this fund outperform the US stock funds.
BND (bonds / F-fund) took a hit yesterday as yields bounced back from the recent decline. It also looks a little stretched in the short-term, but clearly this fund has been beaten down for months and a relief rally could eventually be meaningful. It does have to get out of that bear flag-like formation first.
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. Have a great weekend!
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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Some Fed members are still talking hawkish and and talking, and that continues to put pressure on stocks as yields moved higher yesterday. James Bullard was one of the culprits yesterday as they seem to be trying to tell the public to stop thinking they are going to slow down the interest rate cuts, despite what some rear-view mirror economic numbers say.
There's no doubt that the inflation numbers look better, so why are they being so stubbornly hawkish with rates and rhetoric? I'm guessing they either know something the rest of us don't know - OR, they are wrong -- again. Don't forget, they were telling us in the fall of 2021 that inflation was "transitory", which Allianz advisor Mohamed El-Erian called the "worst inflation call in the history" of the Fed.
The FTX scandal is likely going to be a bigger deal than we've been hearing and it reminds me of 2008. Bear markets tend to bring excesses, failures, and scandals into the light. Like Bear Sterns or Lehman failing during the 2008 bear market, or the Madoff scandal, when you turn on the light the cockroaches will scatter, and the light has been turned on FTX so we'll see how this unfolds. If you read into it, it turns out FTX may be one of the biggest scandals of the bunch.
As for the market action, yesterday's early weakness led to some late buying, and with the holiday next week it's tough to gauge what it really means. Trading volume was very light and on the S&P 500 as it was the lowest trading volume since the summer doldrums days. A high volume reversal means something. I'm not sure yesterday's action did much more than try to fill in the gap that was opened at the opening bell yesterday, although there was strong support where it bottomed yesterday.
The yield on the 10-year Treasury was up, but like everything else, flipped from the opening levels. It found resistance at the 50-day EMA so that is now three closes below that average. However, it is back within that parallel trading channel which looks like a bullish flag. This is a tough call.
The dollar's demise looks more convincing since the CPI report sent it reeling last week. There is a "however" here as well and that is the massive open gaps above which could draw it higher in the short-term.
The Dow Transportation Index has been quite volatile lately. It has led the market higher of the lows but this week we saw back to back big losses off the recent peak. It did manage to turn an early 3% loss into a 1% loss on Thursday creating what looks like a positive reversal above the 200-day EMA, but it did fall below other key support near 14250. And again, trading volume was particularly light.
The price of oil was down with help from the rally in the dollar and it certainly looks like yesterday's low is a key level, otherwise it could be down testing the September lows again. That's great for the consumer and gas prices, but it could be a tell that the interest rate hikes are having an impact on the economy.
Here are the charts of Thanksgiving and Christmas during the last two meaningfully negative years for the stock market. In 2008 there was a big rally leading into Thanksgiving and weakness afterward. In 2018 the market declined leading into Thanksgiving and rallied afterward. But both had some mostly bearish action in December until after Christmas.
All this tells me is that the Santa Claus rally could be trumped by tax selling that gets magnified in December in bearish years. So if you're expecting an end of year rally from here, you may need a back up plan.
Today is an options expiration day so you never know what to expect as traders and money managers unload expiring contracts so there could be some funny business going on to hit price targets.
The S&P 500 (C-fund) opened near the lows of the day but fought back in the afternoon to close near the highs of the day. That was an attempt to fill in the morning open gap, which it basically did. Trading volume was very light making it less than an impressive reversal day, but a reversal none-the-less. The gaps above (~4070) and below (~3820) are vying for attention but the downside found some support near 3900, which seems to be a meaningful area of support and resistance. It's in a rising trading channel, which I had deemed a bear flag, but it has been a lot more resilient than a bear flag should be. The 200-day EMA has held as resistance on the upside and we probably need to respect that until it is broken.
The DWCPF (small caps / S-fund) didn't quite get yesterday morning open gap filled so there is now an open gap above and below yesterday's trading range. The trend is up, but again it has bear flag qualities. It just hasn't acted much like a bear flag yet.
The EFA (I-fund) was flat on the day and it may be running out of steam after a pretty large rally - the largest of the year as it is stretched above resistance. That's a pretty good sign of strength, but it may need to rest before going any higher. The recent sharp decline in the dollar has helped this fund outperform the US stock funds.
BND (bonds / F-fund) took a hit yesterday as yields bounced back from the recent decline. It also looks a little stretched in the short-term, but clearly this fund has been beaten down for months and a relief rally could eventually be meaningful. It does have to get out of that bear flag-like formation first.
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. Have a great weekend!
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.
