Another sea of red as we headed into the weekend where the world braces for new developments out of the Gaza area, and investors lightened up in front of the closing bell. Is the afternoon selling on Friday going to turn out to be a catalyst for a 16th straight positive Monday if no escalation is reported, or will the streak finally come to an end? Despite what many may have imagined, a big rally in the bond market and decline in bond yields on Friday couldn't help the stock market.
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We finally saw a break in yields late last week after the 10-Year Treasury Yield flirted with 5%, but then pulled back to close off those highs. It wasn't a collapse or even a big move, but it may give hope that 5% was the peak in the 6-month rally in yields since the April low near 3.25%. There are some open gaps below on the chart that could be targets for a pullback, barring any yield spiking data or news.
The dollar fell below some support but it remains stubbornly high, also putting pressure on the stock market.
The S&P 500 (C-fund) didn't mind the rising yields until about late July when the rally abruptly stopped, and the correction started. When we look at the weekly and monthly charts we can see the recent damage, but the trends have not been broken yet, although they are getting close.
We came into October knowing a few of things: Octobers can be volatile and more than a few historical market crashes occurred in October. However, it is also a month of market bottoms as 4th quarter rallies into the end of the year commonly start in October, and it actually has a pretty good record going back decades.
I believe I posted this information before about what tends to happen in October after a weak (a loss of 1% or more) in both August and September. August was down 1.8% and September lost 4.2%. Currently the S&P 500 is down about 1.5% for the month as of October 20, so this bullish tendency has 7 trading days to try to recover.
Since 1950 this scenario has seen an average return in the S&P of 4.5% in October with a win rate of 77%. And the fourth quarter was up 92% of the time with an average return of 7%. Only 1957 saw a meaningful loss in the month.
Within those final seven trading days of October we'll get earnings reports from Microsoft and Google on Tuesday, Facebook (Meta) on Wednesday, and Amazon on Thursday. A week later Apple reports on November 2.
The S&P 500 (C-fund) tried several times to get back above the 50-day EMA over the last two weeks, but it never did close above it. Eventually we saw some giving up from the bulls starting on Wednesday of last week, despite a good looking bull flag that had formed, but that has since broken down. The PMO indicator is now back below its moving average, and the move below can indicate a short-term oversold condition, but the longer it stays below it, the more bearish the situation becomes.
After rallying sharply to start the week last week, DWCPF (S-fund, small caps) was hammered to end the week as the 10-year yield moved up to 5%. To be fair, the yield fell on Friday and the small caps did not care. A lower low was created and now it is looking at the lower end of the descending trading channel, and a possible gap fill near 1600.
The EFA (I-fund) also fell below the prior lows from earlier in the month. This is an ugly looking chart but also perhaps due for some relief, especially if the dollar, which is showing signs of falling below support, moves lower.
BND (bonds / F-fund) was up sharply on Friday as yields finally pulled back. This is also an ugly chart that just recently tagged the bottom of its descending trading channel, and perhaps that will lead to a relief rally to fill in the gap up by 69. If 5% on the 10-year does turn out to be a top, then there could be some room for this to run higher, but there is still a lot of resistance in the way.
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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We finally saw a break in yields late last week after the 10-Year Treasury Yield flirted with 5%, but then pulled back to close off those highs. It wasn't a collapse or even a big move, but it may give hope that 5% was the peak in the 6-month rally in yields since the April low near 3.25%. There are some open gaps below on the chart that could be targets for a pullback, barring any yield spiking data or news.
The dollar fell below some support but it remains stubbornly high, also putting pressure on the stock market.
The S&P 500 (C-fund) didn't mind the rising yields until about late July when the rally abruptly stopped, and the correction started. When we look at the weekly and monthly charts we can see the recent damage, but the trends have not been broken yet, although they are getting close.
We came into October knowing a few of things: Octobers can be volatile and more than a few historical market crashes occurred in October. However, it is also a month of market bottoms as 4th quarter rallies into the end of the year commonly start in October, and it actually has a pretty good record going back decades.
I believe I posted this information before about what tends to happen in October after a weak (a loss of 1% or more) in both August and September. August was down 1.8% and September lost 4.2%. Currently the S&P 500 is down about 1.5% for the month as of October 20, so this bullish tendency has 7 trading days to try to recover.
Image source: Carson Investment Research
Since 1950 this scenario has seen an average return in the S&P of 4.5% in October with a win rate of 77%. And the fourth quarter was up 92% of the time with an average return of 7%. Only 1957 saw a meaningful loss in the month.
Within those final seven trading days of October we'll get earnings reports from Microsoft and Google on Tuesday, Facebook (Meta) on Wednesday, and Amazon on Thursday. A week later Apple reports on November 2.
The S&P 500 (C-fund) tried several times to get back above the 50-day EMA over the last two weeks, but it never did close above it. Eventually we saw some giving up from the bulls starting on Wednesday of last week, despite a good looking bull flag that had formed, but that has since broken down. The PMO indicator is now back below its moving average, and the move below can indicate a short-term oversold condition, but the longer it stays below it, the more bearish the situation becomes.
After rallying sharply to start the week last week, DWCPF (S-fund, small caps) was hammered to end the week as the 10-year yield moved up to 5%. To be fair, the yield fell on Friday and the small caps did not care. A lower low was created and now it is looking at the lower end of the descending trading channel, and a possible gap fill near 1600.
The EFA (I-fund) also fell below the prior lows from earlier in the month. This is an ugly looking chart but also perhaps due for some relief, especially if the dollar, which is showing signs of falling below support, moves lower.
BND (bonds / F-fund) was up sharply on Friday as yields finally pulled back. This is also an ugly chart that just recently tagged the bottom of its descending trading channel, and perhaps that will lead to a relief rally to fill in the gap up by 69. If 5% on the 10-year does turn out to be a top, then there could be some room for this to run higher, but there is still a lot of resistance in the way.
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.
