After Thursday's volatile sell-off, investors were relieved to see Friday's PCE Prices and Personal Income and Spending report which came in favorable as signs of easing inflation continues, which probably keeps the Fed at bay for a few more months. The Dow gained 177-points and it was the Nasdaq and small caps once again acting as the leaders. Bonds rallied with yields pulling back.
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No sooner did I talk about "normal" activity no longer working in one of last week's commentaries, that we got that negative reversal day on Thursday, which is normally a solid indicator of short term weakness, but it didn't work and stocks rallied on Friday. That said, it's not a completely broken formation with that sore thumb reversal still sticking up on the S&P 500 (C-fund) and DWCPF (S) charts and Friday's action being news driven. A close above Friday's high probably would negative the negative reversal so let's see how that plays out.
The action has been good and the data has helped, there's no denying. And we almost never get all the ducks to line up in a row, but one of the biggest warning signs out there has been the very reliable inverted yield curve indication that a recession is brewing. It has been inverted for over a year now and so far it has not led to recession, but why the 10-year Treasury Yield, currently 3.95%, is still paying less than every bond that is shorter in duration is not normal by any means. What it actually means, if not economic concerns, even many experts may not understand.
The Yield on the 10-year Treasury was down on Friday but after that big rally on Thursday, a little dip is understandable. It is flirting with 4% and that's a psychological level itself, but there's also some resistance in that area as well. The head and shoulders pattern might suggest a move back down to 3.8% or lower, so a break above 4% could be a shock to the stock market.
The dollar was down early on Friday and the fact that it battled back before filling that red open gap shows some strength. A strong dollar and higher yields could be a road block for the stock market rally, but momentum is also a factor and that is certainly still on the side of the bulls.
It's Monday so I like to give an update on the Fed's balance sheet which was reduced by another $31 billion last week and steadily moving lower since the infusion during the regional bank crisis this past winter.
Here's a longer term view, and while there isn't a direct correlation below the balance sheet level and the stock market, the direction that it is moving does tell us if money is flowing and assisting financial markets, or becoming a possible anchor. We saw what the spike in the balance did to the stock market after the COVID crash as stocks rebounded as quickly as we had ever seen from a bear market low. And then last year when they were reducing it to curb inflation, it triggered a bear market.
The August seasonality chart is weaker than most months of the year.
Chart provided courtesy of www.sentimentrader.com
Here is a list of the 40 year average return for the S&P 500 by month from 1980 to 2019. August and September are the only negatives in the list. To be fair, August of 2020, not included in the list, was up about 13%, and may have pushed the 40-year average into positive territory. In 2021 it was up 3% and in 2022 it was down 4%.
Here is a list of the 40 year average return for the S&P 500 by month from 1980 to 2019. August and September are the only negatives in the list. To be fair, August of 2020, not included in the list, was up about 13%, and may have pushed the 40-year average into positive territory. In 2021 it was up 3% and in 2022 it was down 4%.
Apple and Amazon report earnings after the bell on Thursday, and on Friday we will get the July jobs report before the opening bell, so Friday's trading is setting up to be a big day for stocks, one way or the other.
The S&P 500 (C-fund) rallied 1% on Friday but as I discussed above, that negative outside reversal day may still be unsettled so the action early this week could tell us a lot more about that that typically negative formation will mean going forward into August, one of the tougher months of the year for stocks historically.
DWCPF (S-fund) is in the same situation with that negative outside reversal formation, but the bull flag on this chart makes things a little more complicated, and it looks like the line in the sand is the old resistance line near 1850 and lower, perhaps down to the bottom of that open gap.
EFA (I-fund) bounced back with the US stocks but the recent change in the direction in the dollar to the upside, and the fact that this chart is banging against the upper end of that wide blue trading channel, makes this chart more vulnerable.
BND (bonds / F-fund) broke down last week, but so far it has found support after filling in that large open gap near 72. Yields have been stubbornly strong keeping the pressure on this chart and the deciding factor for the F-fund may lie in whether the 10-year Treasury yield moves back above 4% or not.
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.
Thanks so much for reading! We'll see you back here tomorrow.
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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[TD="width: 338, align: center"] Daily TSP Funds Return
[TR]
[TD="align: right"][/TD]
[/TR]
[/TABLE]
[/TD]
[/TR]
[/TABLE]
No sooner did I talk about "normal" activity no longer working in one of last week's commentaries, that we got that negative reversal day on Thursday, which is normally a solid indicator of short term weakness, but it didn't work and stocks rallied on Friday. That said, it's not a completely broken formation with that sore thumb reversal still sticking up on the S&P 500 (C-fund) and DWCPF (S) charts and Friday's action being news driven. A close above Friday's high probably would negative the negative reversal so let's see how that plays out.
The action has been good and the data has helped, there's no denying. And we almost never get all the ducks to line up in a row, but one of the biggest warning signs out there has been the very reliable inverted yield curve indication that a recession is brewing. It has been inverted for over a year now and so far it has not led to recession, but why the 10-year Treasury Yield, currently 3.95%, is still paying less than every bond that is shorter in duration is not normal by any means. What it actually means, if not economic concerns, even many experts may not understand.
The Yield on the 10-year Treasury was down on Friday but after that big rally on Thursday, a little dip is understandable. It is flirting with 4% and that's a psychological level itself, but there's also some resistance in that area as well. The head and shoulders pattern might suggest a move back down to 3.8% or lower, so a break above 4% could be a shock to the stock market.
The dollar was down early on Friday and the fact that it battled back before filling that red open gap shows some strength. A strong dollar and higher yields could be a road block for the stock market rally, but momentum is also a factor and that is certainly still on the side of the bulls.
It's Monday so I like to give an update on the Fed's balance sheet which was reduced by another $31 billion last week and steadily moving lower since the infusion during the regional bank crisis this past winter.
Here's a longer term view, and while there isn't a direct correlation below the balance sheet level and the stock market, the direction that it is moving does tell us if money is flowing and assisting financial markets, or becoming a possible anchor. We saw what the spike in the balance did to the stock market after the COVID crash as stocks rebounded as quickly as we had ever seen from a bear market low. And then last year when they were reducing it to curb inflation, it triggered a bear market.
The August seasonality chart is weaker than most months of the year.
Chart provided courtesy of www.sentimentrader.com
Here is a list of the 40 year average return for the S&P 500 by month from 1980 to 2019. August and September are the only negatives in the list. To be fair, August of 2020, not included in the list, was up about 13%, and may have pushed the 40-year average into positive territory. In 2021 it was up 3% and in 2022 it was down 4%.
Here is a list of the 40 year average return for the S&P 500 by month from 1980 to 2019. August and September are the only negatives in the list. To be fair, August of 2020, not included in the list, was up about 13%, and may have pushed the 40-year average into positive territory. In 2021 it was up 3% and in 2022 it was down 4%.
Apple and Amazon report earnings after the bell on Thursday, and on Friday we will get the July jobs report before the opening bell, so Friday's trading is setting up to be a big day for stocks, one way or the other.
The S&P 500 (C-fund) rallied 1% on Friday but as I discussed above, that negative outside reversal day may still be unsettled so the action early this week could tell us a lot more about that that typically negative formation will mean going forward into August, one of the tougher months of the year for stocks historically.
DWCPF (S-fund) is in the same situation with that negative outside reversal formation, but the bull flag on this chart makes things a little more complicated, and it looks like the line in the sand is the old resistance line near 1850 and lower, perhaps down to the bottom of that open gap.
EFA (I-fund) bounced back with the US stocks but the recent change in the direction in the dollar to the upside, and the fact that this chart is banging against the upper end of that wide blue trading channel, makes this chart more vulnerable.
BND (bonds / F-fund) broke down last week, but so far it has found support after filling in that large open gap near 72. Yields have been stubbornly strong keeping the pressure on this chart and the deciding factor for the F-fund may lie in whether the 10-year Treasury yield moves back above 4% or not.
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.
Thanks so much for reading! We'll see you back here tomorrow.
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.
