Stocks were mixed yesterday but it was a fairly productive day after the ugly gap down opening on Monday morning. Tech stocks were the drag on the indices and it was the boring stuff like financials and the some of the 2024 laggards like healthcare and energy that led. If you believe in the Dogs of the Dow strategy, that makes sense in a new year. Yields were up again in a volatile session, but that did not deter some dip buyers in the stock market.
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The positive reversal yesterday could absolutely have been a bottom making event. But it might not be. There's still more work to be done.
We saw the post Election Day gaps get filled, hold as support, and trigger some buying at the lows yesterday as many traders and investors saw that as a potential downside target. Stocks had become oversold in the short term after peaking and basically declining since early December, so some kind of a bounce was not a big surprise, but can it last?
We expected that the post election gap was going to get filled early this year, and that could be an all's clear sign for those some who were looking to buy a dip, but that doesn't fix the charts unless we see some upside follow-through back above the old broke support near 5900 on the S&P 500, for example. Also, in the S&P 500 chart down below in the TSP Fund charts section you will see that trading volume wasn't not very high for a reversal day, so be careful.
Nothing in the bond market triggered an all's clear. Long term bond yields were up across the board again yesterday after Friday's hot jobs report.
That gain in the 10-year Treasury Yield is another new high so it may be telling us that yesterday's rebound in stocks was indeed just an oversold bounce. It may take a reverse lower in yields before we see stocks bottom. The bearish story is still here - UNLESS tomorrow's CPI data can help.
We will get that CPI (Consumer Price Index) tomorrow and with yields shooting higher, it is obviously a very big deal. Can this report argue against the new sticky inflation story? We know the jobs report last Friday was a concern for inflation, but again those reports are often well off and get revised in the future. That CPI data may help confirm that strong labor market data.
The Fed's credibility is now at stake. They were adamant about cutting rates in the fall despite some signs of a live jobs market, sticky inflation data, and a pickup in the economic picture. Now they may be paying the price as rising yields are signaling potential inflation trouble again.
There were some nice moves in the various indices, but you can see that even yesterday's big gains in the Dow Transportation Index did little to improve the bear flag on this chart. Getting back above the 200-day EMA is something, but it must follow up with more gains above and out of the flag.
The futures were up on Monday evening, and some short-term upside follow through is typical after a positive reversal day, but holding is another story. That's not as easy in a down trending market.
Admin note: We are offering a discount on our annual subscriptions to new and current subscribers until Jan 18. You can sign up to a new service or add a year or two (in some cases) to your current subscription for 20% off the regular price (or 50% in some cases.) Use this link for more information: TSP Talk - Annual Subscription Sale
The S&P 500 (C-fund) gapped open sharply to the downside, filled the post Election Day open gap, and then rebounded. It closed back above the 100-day EMA, although that hasn't been the most meaningful average on this chart. The 50-day EMA is still quite a bit above Monday's closing price, and that could be a rebound target, but the chart is not out of the woods yet. It's sitting just below the head and shoulders pattern, and it needs to overtake the level near 5850. Trading volume was not very impressive for a reversal day so I'm a little suspicious.
DWCPF (S-fund) had a very strong reversal day as it too filled the post Election Day gap, then closed up 0.28%. There is technically an open gap up near 2280, but the bottom of that blue bear flag may also try to hold it down. It is really dancing around some key pivot points and Wednesday's CPI report could be the catalyst to take it out of this limbo area.
ACWX (the I-fund tracking index) was down 0.41% yesterday and the I-fund was given a loss of 0.78%. An oversold bounce in a downtrend tends to be a selling opportunity. There is more room on the upside if this wants to continue to rebound, but watch the 52.25 area as possible resistance for any rebound.
BND (bonds / F-fund) is in a similar situation, but it couldn't even mange a small bounce yesterday. A rebound up to 71.50 is possible, but the resistance gets heavy there.
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
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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 positive reversal yesterday could absolutely have been a bottom making event. But it might not be. There's still more work to be done.
We saw the post Election Day gaps get filled, hold as support, and trigger some buying at the lows yesterday as many traders and investors saw that as a potential downside target. Stocks had become oversold in the short term after peaking and basically declining since early December, so some kind of a bounce was not a big surprise, but can it last?
We expected that the post election gap was going to get filled early this year, and that could be an all's clear sign for those some who were looking to buy a dip, but that doesn't fix the charts unless we see some upside follow-through back above the old broke support near 5900 on the S&P 500, for example. Also, in the S&P 500 chart down below in the TSP Fund charts section you will see that trading volume wasn't not very high for a reversal day, so be careful.
Nothing in the bond market triggered an all's clear. Long term bond yields were up across the board again yesterday after Friday's hot jobs report.
That gain in the 10-year Treasury Yield is another new high so it may be telling us that yesterday's rebound in stocks was indeed just an oversold bounce. It may take a reverse lower in yields before we see stocks bottom. The bearish story is still here - UNLESS tomorrow's CPI data can help.
We will get that CPI (Consumer Price Index) tomorrow and with yields shooting higher, it is obviously a very big deal. Can this report argue against the new sticky inflation story? We know the jobs report last Friday was a concern for inflation, but again those reports are often well off and get revised in the future. That CPI data may help confirm that strong labor market data.
The Fed's credibility is now at stake. They were adamant about cutting rates in the fall despite some signs of a live jobs market, sticky inflation data, and a pickup in the economic picture. Now they may be paying the price as rising yields are signaling potential inflation trouble again.
There were some nice moves in the various indices, but you can see that even yesterday's big gains in the Dow Transportation Index did little to improve the bear flag on this chart. Getting back above the 200-day EMA is something, but it must follow up with more gains above and out of the flag.
The futures were up on Monday evening, and some short-term upside follow through is typical after a positive reversal day, but holding is another story. That's not as easy in a down trending market.
Admin note: We are offering a discount on our annual subscriptions to new and current subscribers until Jan 18. You can sign up to a new service or add a year or two (in some cases) to your current subscription for 20% off the regular price (or 50% in some cases.) Use this link for more information: TSP Talk - Annual Subscription Sale
The S&P 500 (C-fund) gapped open sharply to the downside, filled the post Election Day open gap, and then rebounded. It closed back above the 100-day EMA, although that hasn't been the most meaningful average on this chart. The 50-day EMA is still quite a bit above Monday's closing price, and that could be a rebound target, but the chart is not out of the woods yet. It's sitting just below the head and shoulders pattern, and it needs to overtake the level near 5850. Trading volume was not very impressive for a reversal day so I'm a little suspicious.
DWCPF (S-fund) had a very strong reversal day as it too filled the post Election Day gap, then closed up 0.28%. There is technically an open gap up near 2280, but the bottom of that blue bear flag may also try to hold it down. It is really dancing around some key pivot points and Wednesday's CPI report could be the catalyst to take it out of this limbo area.
ACWX (the I-fund tracking index) was down 0.41% yesterday and the I-fund was given a loss of 0.78%. An oversold bounce in a downtrend tends to be a selling opportunity. There is more room on the upside if this wants to continue to rebound, but watch the 52.25 area as possible resistance for any rebound.
BND (bonds / F-fund) is in a similar situation, but it couldn't even mange a small bounce yesterday. A rebound up to 71.50 is possible, but the resistance gets heavy there.
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
Questions, comments, or issues with today's commentary? We can discuss it in the Forum.
Daily Market Commentary Archives
For more info our other premium services, please go here... www.tsptalk.com/premiums.php
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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