Stocks open the new week sharply lower but dip buyers were quick to respond. While the major three indices did close in the red, they all did a pretty good job of closing off their lows. Once again the small caps outperformed despite a move higher in yields. They are calling it rotation as the beaten down small caps indices had been shunned since their peak in late 2021. Now, with rates potentially coming down, they are back on investors' radar. We've seen this before and it didn't last. Is it different this time?
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The S&P 500 is at or near a major double top test which opened the door for a potential pullback. As strong as small caps have been, I wondered out loud in yesterday's commentary whether a pullback in the S&P 500 would stop the upside momentum in small caps. With the S-fund gaining 0.57% yesterday, and the Russell 2000 up over 1%, I think we got an answer.
Once again I will point out that, while we are seeing a big move in the S-fund, we have seen this before and the road isn't completely cleared yet. It would be a 31% move from yesterday's close to test the previous highs, which came at the end of 2021. That would be great, but there is also that giant bear flag in the way, and that resistance is just below 1900, so there's more work do.
Losses in the large tech stocks yesterday held the Nasdaq and S&P 500 back yesterday. Coincidentally or right on cue, we may have another Barron's Cover curse.
I saw this on Fast Money last night, mocking the Barron's cover story contrarian indicator. The premise being, once a story hits the cover of Barron's, the run may be close to over. The current cover is about the AI Gold Rush. Nothing kills a rally like a Barron's cover, although we've mentioned this before and I believe someone went back and noticed only a modest trend of them triggering turning points. In other words, don't bet the farm on this triggering a peak in the AI rally, but it's worth paying attention to.
The 10-Year Treasury Yield and the dollar were up yesterday, and that seems to be the trend. If yields go up, stocks have a roadblock. If yields come down, stocks rally. Not every day, but that's the general trend.
The UUP dollar chart is up against some resistance so that trend may be getting tested now, and the 10-year yield needs to get back over 4.3%, and even 4.5%, before I'd consider that a break in the trend.
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) is playing around near the July peak and deciding whether to create a double top pullback or, frustrate both the bulls and bears and hold here or even break out to a new high without a pullback. I say the bulls and the bears would be frustrated because even the bulls wouldn't mind some kind of pause here, whether to put more money to work at a lower level, or just to build a little support after the precipitous rally. As I mentioned yesterday, I have my eye on last week's high volume rally, as those tend to come close to turning points.
DWCPF (S-fund) continued its climb higher and it moved above another level of resistance yesterday without much trouble. That sideways churning between November 15th and 28th gave it enough of a rest to push to the next leg up, but as I mentioned above, there is some major resistance near 1900 before this can challenge its all time highs near 2400.
EFA (I-fund) was down sharply on Monday and the rally in the dollar added the additional pressure. The 2023 high in the EFA are up near 75 but at the moment it is testing the peak from back in August at 73.50. Can it break through another layer of resistance before backing and filling in some of those open gaps?
BND (bonds / F-fund) appears to have bottomed, but it too has had a major rally and may be in need of a rest and pullback before jumping over 72. The chances of interest rates cuts in 2024 are mounting and it looks like 4 or 5 rate cuts are being priced in already, but is that getting too optimistic, too early? The only thing that might confirm that kind of aggressive cutting would be the threat of a recession.
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.
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The S&P 500 is at or near a major double top test which opened the door for a potential pullback. As strong as small caps have been, I wondered out loud in yesterday's commentary whether a pullback in the S&P 500 would stop the upside momentum in small caps. With the S-fund gaining 0.57% yesterday, and the Russell 2000 up over 1%, I think we got an answer.
Once again I will point out that, while we are seeing a big move in the S-fund, we have seen this before and the road isn't completely cleared yet. It would be a 31% move from yesterday's close to test the previous highs, which came at the end of 2021. That would be great, but there is also that giant bear flag in the way, and that resistance is just below 1900, so there's more work do.
Losses in the large tech stocks yesterday held the Nasdaq and S&P 500 back yesterday. Coincidentally or right on cue, we may have another Barron's Cover curse.
I saw this on Fast Money last night, mocking the Barron's cover story contrarian indicator. The premise being, once a story hits the cover of Barron's, the run may be close to over. The current cover is about the AI Gold Rush. Nothing kills a rally like a Barron's cover, although we've mentioned this before and I believe someone went back and noticed only a modest trend of them triggering turning points. In other words, don't bet the farm on this triggering a peak in the AI rally, but it's worth paying attention to.
The 10-Year Treasury Yield and the dollar were up yesterday, and that seems to be the trend. If yields go up, stocks have a roadblock. If yields come down, stocks rally. Not every day, but that's the general trend.
The UUP dollar chart is up against some resistance so that trend may be getting tested now, and the 10-year yield needs to get back over 4.3%, and even 4.5%, before I'd consider that a break in the trend.
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) is playing around near the July peak and deciding whether to create a double top pullback or, frustrate both the bulls and bears and hold here or even break out to a new high without a pullback. I say the bulls and the bears would be frustrated because even the bulls wouldn't mind some kind of pause here, whether to put more money to work at a lower level, or just to build a little support after the precipitous rally. As I mentioned yesterday, I have my eye on last week's high volume rally, as those tend to come close to turning points.
DWCPF (S-fund) continued its climb higher and it moved above another level of resistance yesterday without much trouble. That sideways churning between November 15th and 28th gave it enough of a rest to push to the next leg up, but as I mentioned above, there is some major resistance near 1900 before this can challenge its all time highs near 2400.
EFA (I-fund) was down sharply on Monday and the rally in the dollar added the additional pressure. The 2023 high in the EFA are up near 75 but at the moment it is testing the peak from back in August at 73.50. Can it break through another layer of resistance before backing and filling in some of those open gaps?
BND (bonds / F-fund) appears to have bottomed, but it too has had a major rally and may be in need of a rest and pullback before jumping over 72. The chances of interest rates cuts in 2024 are mounting and it looks like 4 or 5 rate cuts are being priced in already, but is that getting too optimistic, too early? The only thing that might confirm that kind of aggressive cutting would be the threat of a recession.
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.
