Stocks opened lower on Wednesday and fell sharply into the early afternoon. An afternoon rally off the lows turned a really bad looking day for stocks, into a possible reversal as several charts tested and held at their 50-day EMA. That's the good news. The bad news is that some of the market leaders are leading on the downside and the jury is still out on which way they eventually break. Yields were up (bonds down), oil was up, and the dollar was flat.
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Looking for some clues for what the market wants to do in September may take a few days to work out as we are still in a light trading volume environment and watching the pre / post holiday reversal drama play out.
Yields moving up is not in and of itself an historically bearish indicator for the stock market, since it can be an indicator of economic growth as well as inflation. But at this point in time investors are judging those yields more toward the indication of inflation and whether the Fed is done raising interest rates or not, so currently yields moving up is mostly a bearish sign for stocks, and the trend remains up on the yield on the 10-year Treasury. A gap was filled yesterday (clue) and another remains open (red) below.
The higher yields yesterday sent BND (Bonds / F-fund) slightly lower and it is now testing an area that we talked about yesterday where we could see some support at the old broken resistance line and the open gap between about 70.50 and 70.60, but yields must cooperate.
Another headwind recently for the stock market has been Apple - the largest stock in the US and a major weight in the Dow, S&P 500, and Nasdaq indices. It had rallied nicely off the recent lows, but that rally found some resistance after it filled that open gap created by the reaction to their most recent earnings report. It closed just below the 50-day EMA and it looking for some support at the ascending line connecting the prior lows.
Some of the market leaders are leaking. The Dow Transportation Index broke down on Tuesday and yesterday it sold off again and that pushed it below another level of potential support - the old resistance line it had broken above in August. The broken bear flag is concerning and downside targets could be near the 200-day EMA should it play out.
The Russell 2000 small caps index is another barometer for broader market strength, and it has stared to pull back from its August rally, and that new peak may be the right shoulder of a head and shoulders pattern. The 200-day EMA is near the neckline of that H&S pattern so 182.50 - 184 look to be the line in the sand to prevent a breakdown from the head and shoulders.
As goes Apple, and as go the Transports, and as go the small caps - so may the market go, and that may give us answers to what happens the rest of September.
The price of oil was up another1% yesterday. It closed at about 87.60 yesterday and as it reaches toward $90 or more, it could be another head wind.
So we have some catalysts and they look troubling, but it wouldn't take much to turn the ship back around, and maybe that happens after the post holiday reversal finishes? Perhaps next week's CPI and PPI will turn yields around, and that would flip a lot of charts around. If not, the charts should tell us.
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The S&P 500 (C-fund) opened lower and the selling intensified up until the point where it nearly hit the 50-day EMA. As we talked about yesterday - "That large break up candle from last week may need to get digested a little more before we see anymore upside", and it has now been done. There is still an open gap up near 4570, so that's always a possible target, but we could also be seeing the right shoulder of a head and shoulders pattern forming, in which case the 4330 area could get tested again.
DWCPF (S-fund) is also potentially creating the right shoulder of a head and shoulders pattern, however it is also testing some key support which, if it holds, could nullify that H&S. There's an open gap up by 1860, but another one all the way down near 1670. This looks shaky here but it's all about that 1780 area holding right now.
The EFA (I-fund) was down and it has been below its 50-day EMA for a week now, but it filled the open gap near 70.50 before popping higher. Holding there would be a good sign, but the chart is a little more broken than the US stock fund charts, and that may remain the case until the dollar stops rallying.
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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Looking for some clues for what the market wants to do in September may take a few days to work out as we are still in a light trading volume environment and watching the pre / post holiday reversal drama play out.
Yields moving up is not in and of itself an historically bearish indicator for the stock market, since it can be an indicator of economic growth as well as inflation. But at this point in time investors are judging those yields more toward the indication of inflation and whether the Fed is done raising interest rates or not, so currently yields moving up is mostly a bearish sign for stocks, and the trend remains up on the yield on the 10-year Treasury. A gap was filled yesterday (clue) and another remains open (red) below.
The higher yields yesterday sent BND (Bonds / F-fund) slightly lower and it is now testing an area that we talked about yesterday where we could see some support at the old broken resistance line and the open gap between about 70.50 and 70.60, but yields must cooperate.
Another headwind recently for the stock market has been Apple - the largest stock in the US and a major weight in the Dow, S&P 500, and Nasdaq indices. It had rallied nicely off the recent lows, but that rally found some resistance after it filled that open gap created by the reaction to their most recent earnings report. It closed just below the 50-day EMA and it looking for some support at the ascending line connecting the prior lows.
Some of the market leaders are leaking. The Dow Transportation Index broke down on Tuesday and yesterday it sold off again and that pushed it below another level of potential support - the old resistance line it had broken above in August. The broken bear flag is concerning and downside targets could be near the 200-day EMA should it play out.
The Russell 2000 small caps index is another barometer for broader market strength, and it has stared to pull back from its August rally, and that new peak may be the right shoulder of a head and shoulders pattern. The 200-day EMA is near the neckline of that H&S pattern so 182.50 - 184 look to be the line in the sand to prevent a breakdown from the head and shoulders.
As goes Apple, and as go the Transports, and as go the small caps - so may the market go, and that may give us answers to what happens the rest of September.
The price of oil was up another1% yesterday. It closed at about 87.60 yesterday and as it reaches toward $90 or more, it could be another head wind.
So we have some catalysts and they look troubling, but it wouldn't take much to turn the ship back around, and maybe that happens after the post holiday reversal finishes? Perhaps next week's CPI and PPI will turn yields around, and that would flip a lot of charts around. If not, the charts should tell us.
Administrative Note: It's time for the 2023 NFL Survivor Pool again. It's a very easy contest to do - just pick one winning team every week and you move on to the next week. As always, it's free. The deadline to register and make your week one pick is the start of the first game this coming Sunday. More information
The S&P 500 (C-fund) opened lower and the selling intensified up until the point where it nearly hit the 50-day EMA. As we talked about yesterday - "That large break up candle from last week may need to get digested a little more before we see anymore upside", and it has now been done. There is still an open gap up near 4570, so that's always a possible target, but we could also be seeing the right shoulder of a head and shoulders pattern forming, in which case the 4330 area could get tested again.
DWCPF (S-fund) is also potentially creating the right shoulder of a head and shoulders pattern, however it is also testing some key support which, if it holds, could nullify that H&S. There's an open gap up by 1860, but another one all the way down near 1670. This looks shaky here but it's all about that 1780 area holding right now.
The EFA (I-fund) was down and it has been below its 50-day EMA for a week now, but it filled the open gap near 70.50 before popping higher. Holding there would be a good sign, but the chart is a little more broken than the US stock fund charts, and that may remain the case until the dollar stops rallying.
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.
