Stocks fell sharply on Wednesday as seasonal tendencies seem to be coming right on cue. The talk of coronavirus cases increasing didn't help but late June it is a rebalancing period for many funds, and yada, yada, yada, the Dow lost 710-points. Selling begets selling and profit taking from investors who may have made a lot of money in recent months is not too surprising. But is there more to it than that?
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The S&P 500 couldn't quite fill its overhead open gap that has been right there for the taking for a week or so now, indicating that the market was showing some signs of fatigue. The Nasdaq broke its 8 day winning streak with a big loss yesterday so once again we see that stocks do tend to fall faster than they go up.
It wasn't like investors were running for the safety trades with bonds and gold mostly flat on the day, although if bonds and gold do start to breakout to new highs, and they are flirting with that situation, while stocks get weaker, then we may be seeing another major peak forming in the stock market.
Until then, it may have just been a seasonal play as we hear the of end of quarter pensions rebalancing after stocks prices soared in the 2nd quarter and some of those gains needed to be moved into bonds for these funds to retain their specified allocations.
It happens often this time of year as we shown in the seasonality charts recently, and then the bulls have a tendency to take back control in the final days of the month and particularly into July.
Charts provided courtesy of www.sentimentrader.com
Here's the June / July charts of the S&P from the prior three years. It's starting to look familiar.
The Fed is all in to try to support the economy and the government is planning more stimulus so, unless the coronavirus shuts the economy again, there seems to be a floor in the market. It's good for ratings so the media loves to talk about it, but the rise in the COVID cases may not be a deal breaker for the economy because they are going up as testing increases, and it seems younger people are the ones testing positive for the virus now. That's mostly because they have been less likely to stay home or to wear masks.
Source: https://www.cdc.gov/coronavirus/2019-ncov/covid-data/covidview/index.html
Older people seem to understand that they need to remain very cautious, and that's why cases can go up, while the hospitalizations and deaths may not. Of course I am no expert, but it does not sound like the virus is getting more aggressive, but rather that complacency is causing the increase, and that may be easier to remedy.
Technically, we are seeing some cracks with the S&P 500 and small caps still failing to reach the prior highs. The Nasdaq has done so as it continues to lead the market. The question is whether this potentially seasonal decline is just a refresh, or starting something more serious. For now, the S&P remains above key support, as you'll see below, but how many "shock drops" can the market endure before we see investors running again? Of course there is a lot of cash on sidelines waiting for an opportunity to buy, and perhaps this will draw some of those reluctant buyers in?
The S&P 500 (C-fund) did crack a bit yesterday as it closed below some rising support, and will now look to the 50 and 200-day EMAs for support. I'm not a fan of those "h" formations, since they can just be a form of a bear flag, but sometimes they create short-term double bottoms, and that's where the 50 and 200-day EMAs will come in. If they break down then all bets are off.
From Wednesday's commentary:
"The dollar has been a good contrarian indicator for stocks, and yesterday's tumble helped lift stocks again. It did rally to close off the lows - the opposite of what the stock indices did - and there is a small overhead gap which could indicate that stocks could have another brief dip while this fills its gap."
Well yesterday we did see that overhead gap on UUP get filled (blue), and another gap open (red) of the downside.
The DWCPF (S-fund) is down testing the bottom of its rising trading channel. Hitting the top of it earlier in the month was a reason for caution, and bouncing off of it on the 15th was a green light for many. Here it is again at the bottom. With the 50 and 200-day EMAs just below, those support areas have to hold.
The EFA (I-fund) was down sharply with U.S. stocks and the big rally in the dollar may have magnified the loss in the I-fund. After failing again at the 200-day SMA, it is now resting on the 200-day EMA, and holding just above the rising support line.
The Dow Transportation Index fell 3% and came to rest on its 50-day EMA so the theme of key support being tested continues here.
The yield on the 10-year Treasury continues to dance on the support line of what looks like the neckline of a potential head and shoulders pattern. The rebalancing into bonds probably had something to do with that, but will it be enough to finally break through that support - which would be bullish for bonds and the F-fund?
BND (bond ETF) was up slightly but the F-fund should probably show a better day with those yields falling sharply yesterday. These have been moving sideways to slightly higher for more than a week but no spike up showing investors panicking in the stock market - yet, which we saw in early March.
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
Thanks 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="align: center"] Daily TSP Funds Return
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[TD="align: right"] [/TD]
[/TR]
[/TABLE]
[/TD]
[TD][/TD]
[TD="align: center"]
[/TR]
[/TABLE]
The S&P 500 couldn't quite fill its overhead open gap that has been right there for the taking for a week or so now, indicating that the market was showing some signs of fatigue. The Nasdaq broke its 8 day winning streak with a big loss yesterday so once again we see that stocks do tend to fall faster than they go up.
It wasn't like investors were running for the safety trades with bonds and gold mostly flat on the day, although if bonds and gold do start to breakout to new highs, and they are flirting with that situation, while stocks get weaker, then we may be seeing another major peak forming in the stock market.
Until then, it may have just been a seasonal play as we hear the of end of quarter pensions rebalancing after stocks prices soared in the 2nd quarter and some of those gains needed to be moved into bonds for these funds to retain their specified allocations.
It happens often this time of year as we shown in the seasonality charts recently, and then the bulls have a tendency to take back control in the final days of the month and particularly into July.
Charts provided courtesy of www.sentimentrader.com
Here's the June / July charts of the S&P from the prior three years. It's starting to look familiar.
The Fed is all in to try to support the economy and the government is planning more stimulus so, unless the coronavirus shuts the economy again, there seems to be a floor in the market. It's good for ratings so the media loves to talk about it, but the rise in the COVID cases may not be a deal breaker for the economy because they are going up as testing increases, and it seems younger people are the ones testing positive for the virus now. That's mostly because they have been less likely to stay home or to wear masks.
Source: https://www.cdc.gov/coronavirus/2019-ncov/covid-data/covidview/index.html
Older people seem to understand that they need to remain very cautious, and that's why cases can go up, while the hospitalizations and deaths may not. Of course I am no expert, but it does not sound like the virus is getting more aggressive, but rather that complacency is causing the increase, and that may be easier to remedy.
Technically, we are seeing some cracks with the S&P 500 and small caps still failing to reach the prior highs. The Nasdaq has done so as it continues to lead the market. The question is whether this potentially seasonal decline is just a refresh, or starting something more serious. For now, the S&P remains above key support, as you'll see below, but how many "shock drops" can the market endure before we see investors running again? Of course there is a lot of cash on sidelines waiting for an opportunity to buy, and perhaps this will draw some of those reluctant buyers in?
The S&P 500 (C-fund) did crack a bit yesterday as it closed below some rising support, and will now look to the 50 and 200-day EMAs for support. I'm not a fan of those "h" formations, since they can just be a form of a bear flag, but sometimes they create short-term double bottoms, and that's where the 50 and 200-day EMAs will come in. If they break down then all bets are off.
From Wednesday's commentary:
"The dollar has been a good contrarian indicator for stocks, and yesterday's tumble helped lift stocks again. It did rally to close off the lows - the opposite of what the stock indices did - and there is a small overhead gap which could indicate that stocks could have another brief dip while this fills its gap."
Well yesterday we did see that overhead gap on UUP get filled (blue), and another gap open (red) of the downside.
The DWCPF (S-fund) is down testing the bottom of its rising trading channel. Hitting the top of it earlier in the month was a reason for caution, and bouncing off of it on the 15th was a green light for many. Here it is again at the bottom. With the 50 and 200-day EMAs just below, those support areas have to hold.
The EFA (I-fund) was down sharply with U.S. stocks and the big rally in the dollar may have magnified the loss in the I-fund. After failing again at the 200-day SMA, it is now resting on the 200-day EMA, and holding just above the rising support line.
The Dow Transportation Index fell 3% and came to rest on its 50-day EMA so the theme of key support being tested continues here.
The yield on the 10-year Treasury continues to dance on the support line of what looks like the neckline of a potential head and shoulders pattern. The rebalancing into bonds probably had something to do with that, but will it be enough to finally break through that support - which would be bullish for bonds and the F-fund?
BND (bond ETF) was up slightly but the F-fund should probably show a better day with those yields falling sharply yesterday. These have been moving sideways to slightly higher for more than a week but no spike up showing investors panicking in the stock market - yet, which we saw in early March.
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
Thanks 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.
