Stocks continue to fade the market's opening direction, but unlike on Monday and Tuesday when stocks opened lower but battled back all day, yesterday it was a strong gap up followed by hours of sliding lower and into the close - closing at the lows. The Dow lost 70-points and big tech was the laggard yesterday with the Nasdaq losing 0.58%. Bonds were up again but yields, which move counter to bond prices, are now testing long term support.
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The market has been pricing in a pause in interest rate hikes and even lower rates for next year, and the consensus of a soft landing, rather than a recession, is gaining steam, but either situation means a slowdown in the economy, and if this Goldilocks situation has been priced in, where can stocks go from here?
The economic data has been on the quiet side and not much is changing so stocks have been basically moving sideways for a few days, but tomorrow's jobs report and next week's FOMC meeting could trigger something new, but will the stock and bond markets front run them? Meaning, is the 10-year Treasury Yield chart signaling a low as it not only tests the 200-day EMA, but also (2nd chart) it is testing some longer-term support lines. A change in direction in yields would likely change the mood on Wall Street.
If the support does trigger a bounce back in the 10-year yield, then we'd expect the bond market / F-fund to finally pull back a little. It's been quite a run off the October lows and it is above most moving averages at this point, although I did check and see that it is up against the 500-day EMA - something that is rarely in play, but there it is in green above on the BND chart.
The dollar has already started rebounding without yields, and it easily pushed above its 50-day EMA yesterday, en route to trying to fill that open gap near 29.55. A strong dollar can act as a headwind to the stock market, and with yields falling lately, it may be having more influence on the stock market than the 10-year yield at the moment.
I hate to keep harping on this, but the weakness in the price of oil, and the complete change in direction and strength since September, is amazing. Oil closed at $69.25 yesterday, which is the first close below $70 since June and far cry from $95, where it was just two months ago.
Again, this indicates economic weakness and the question is, where do you want your money allocated in a weakening economic environment? Santa Claus rallies are very traditional so perhaps any stock market reaction to this data won't begin until the New Year, but there's no rule that says December has to be positive.
We will get the November Jobs Report on Friday and estimates are looking for a gain of about 175,000 jobs with an unemployment rate of 3.9%.
The S&P 500 (C-fund) had a negative reversal day yesterday, and it was just barely an outside reversal day making it more meaningful. That just means that the action in the short-term has a negative bias, but the chart has been churning above 4550 for a while. Like the inverted head an shoulders pattern from October and November (blue), which broke out to the upside as those patterns tend to do, this current larger inverted head and shoulders in red has not yet formed a decent right shoulder yet. Will this repeat the November deformed right shoulder, or will we get a real right shoulder which could fill in more of that large red circle on the right?
DWCPF (S-fund) made another higher high yesterday morning but that failed to hold above the September 1st peak again. That created an inverted hammer candlestick, which has a tail on top and closes near the lows, and they almost always lead to some short-term weakness. We saw several of these during the August to October correction, but this is the first one since the lows.
EFA (I-fund) has been playing with the old gap from August but so far has failed twice to move above it, even though there's another open gap above 74. Another negative reversal formation and the question here may be whether the dollar will continue its recent rebound. A strong dollar will hold this one back, or at least make it tougher to move up.
Thanks so much for reading! We'll see you back here tomorrow.
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
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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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The market has been pricing in a pause in interest rate hikes and even lower rates for next year, and the consensus of a soft landing, rather than a recession, is gaining steam, but either situation means a slowdown in the economy, and if this Goldilocks situation has been priced in, where can stocks go from here?
The economic data has been on the quiet side and not much is changing so stocks have been basically moving sideways for a few days, but tomorrow's jobs report and next week's FOMC meeting could trigger something new, but will the stock and bond markets front run them? Meaning, is the 10-year Treasury Yield chart signaling a low as it not only tests the 200-day EMA, but also (2nd chart) it is testing some longer-term support lines. A change in direction in yields would likely change the mood on Wall Street.
If the support does trigger a bounce back in the 10-year yield, then we'd expect the bond market / F-fund to finally pull back a little. It's been quite a run off the October lows and it is above most moving averages at this point, although I did check and see that it is up against the 500-day EMA - something that is rarely in play, but there it is in green above on the BND chart.
The dollar has already started rebounding without yields, and it easily pushed above its 50-day EMA yesterday, en route to trying to fill that open gap near 29.55. A strong dollar can act as a headwind to the stock market, and with yields falling lately, it may be having more influence on the stock market than the 10-year yield at the moment.
I hate to keep harping on this, but the weakness in the price of oil, and the complete change in direction and strength since September, is amazing. Oil closed at $69.25 yesterday, which is the first close below $70 since June and far cry from $95, where it was just two months ago.
Again, this indicates economic weakness and the question is, where do you want your money allocated in a weakening economic environment? Santa Claus rallies are very traditional so perhaps any stock market reaction to this data won't begin until the New Year, but there's no rule that says December has to be positive.
We will get the November Jobs Report on Friday and estimates are looking for a gain of about 175,000 jobs with an unemployment rate of 3.9%.
The S&P 500 (C-fund) had a negative reversal day yesterday, and it was just barely an outside reversal day making it more meaningful. That just means that the action in the short-term has a negative bias, but the chart has been churning above 4550 for a while. Like the inverted head an shoulders pattern from October and November (blue), which broke out to the upside as those patterns tend to do, this current larger inverted head and shoulders in red has not yet formed a decent right shoulder yet. Will this repeat the November deformed right shoulder, or will we get a real right shoulder which could fill in more of that large red circle on the right?
DWCPF (S-fund) made another higher high yesterday morning but that failed to hold above the September 1st peak again. That created an inverted hammer candlestick, which has a tail on top and closes near the lows, and they almost always lead to some short-term weakness. We saw several of these during the August to October correction, but this is the first one since the lows.
EFA (I-fund) has been playing with the old gap from August but so far has failed twice to move above it, even though there's another open gap above 74. Another negative reversal formation and the question here may be whether the dollar will continue its recent rebound. A strong dollar will hold this one back, or at least make it tougher to move up.
Thanks so much for reading! We'll see you back here tomorrow.
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.
