Another mixed, but mostly lower day for stocks on Friday, and the losses took the TSP stock funds down with them. The Dow and small caps each lost 1% on the day, the S&P 500 fell a half of a percent, while the Nasdaq was spared rallying on some big tech buying fueled by a 7% rally in Amazon. Bonds were flat and the dollar was down slightly.
[TABLE="align: center"]
[TR]
[TD="align: center"]
[/TD]
[TD]
[/TD]
[TD="width: 338, align: center"] Daily TSP Funds Return
[TABLE="align: center"]
[TR]
[TD="align: right"][/TD]
[/TR]
[/TABLE]
[/TD]
[/TR]
[/TABLE]
The 1% loss in the small caps leaves the fund up less than 1% for the year, after starting 2023 with an 11% gain in January. So much for the January Barometer which suggests when January is positive, the market has a good year. If the recent trend continues, that tendency would be in jeopardy, but here's another bullish tendency for the end of October, into the first three days of November. The 5 trading days have a 74% winning rate over the last 74 years.
Chart provided courtesy of www.sentimentrader.com
Tendencies are not certainties, and as I have mentioned a few times, history suggested a high probability that October would be positive if August and September were both down 1%. With the S&P 500 down about 4% this month, there's just two days left to make good on that one.
Here's another one -- remember the 'Magazine Cover' Indicator? It has been considered a good contrarian indicator, meaning Barron's, or other major magazine covers, have had a history of making very poor calls that, if you had done the opposite, you would have been better off. But is it true?
I found an article written 10 years ago by Josh Brown who said, "Barron’s gets it right and wrong with their covers – with no particularly discernible way to trade off of them, long or short. But the knee-jerk reflexive contrarianism on the web each weekend is just as unhelpful as blindly believing in whatever the editors choose to sell us that week from the newsstand. Grow up. It’s a magazine. And when everyone knows it’s a fade, it’s not really a fade anymore is it?"
The reason I bring it up is that Barron's recent cover is suggesting that bonds are bottoming. I might have agreed with that, but in my case, it's worse. I have been calling for a possible bottom in bonds for a couple of months now. Only time will tell if they're right, or if they will be the victim of another call that should have been faded.
And speaking of bonds, the 10-year Treasury Yield was flat on Friday and while there are some open gaps below, that 4.83% area has been stubbornly holding as support. If that gives out we should see 4.7% quickly, but if it holds it could be visiting 5% again, which has been a stck market killer. Reminder that bond yields move counter to bond prices and the Fund.
BND (bonds / F-fund) is moving counter to those yields and again, will Barron's be right in predicting a low here? A test of last year's lows near 67 is certainly a possibility. BND has been trending lower since the peak in April so it's probably overdue for a more serious bounce, but even then, it wouldn't necessarily mean it is a bottom for the F-fund.
The weekly chart of the S&P 500 shows some troubling developments as long term support was recently broken. I noted prior breaks in the trend and you can see that, after a break down or a breakout to the upside, you can get some follow through in that same direction before a retracement of the move occurs, and they can last weeks, if not months, before the S&P resumes the direction of the breakout / break down.
There were two strong rallies in early 2022 after the initial break down, before the downside resumed. In early 2023 we got a breakout above resistance in January, that quickly rolled over before the rally resumed at the end of March.
So it is possible that we get an end of year rally. There are nine weeks left in the year and that's enough time for a lot of things to happen including a major rally back up to the old broken support line. Or the downside could continue for a few more weeks before that happens, but seasonality does favor the bulls for the next few months.
There is an FOMC meeting this week with a Fed decision on interest rates on Wednesday. No changes in rates are expected.
We will also get the October jobs report on Friday.
The S&P 500 (C-fund) chart has been breaking recently. The support from the moving averages and the trend lines have easily broken down. This is a red flag as we talked about above, it could also trigger a relief rally now that that many of the bulls' stops were hit below support. Meaning, anyone who was looking to sell, or had put in order to sell when support was broken, has likely already sold, or at least holding some cash at this point, which could be ammunition for a bounce.
DWCPF (S-fund) has been beaten down over the last three months and it finds itself back down near some old support levels from 2022 and earlier in 2023. The chances of a bounce is high, but that doesn't mean things won't get much worse even after a rebound. It will all depend on a lot of factors including what the Fed does and says later this week, where bond yields go, not to mention the geopolitical events that continue to unfold.
EFA (I-fund) also broke some major support which suggests that the bear market may just be getting started, but it too can experience an oversold bounce as stocks rarely go straight down.
The dollar is near recent highs but it may be ready for a temporary double top pullback.
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.
[TABLE="align: center"]
[TR]
[TD="align: center"]
[TD]
[/TD]
[TD="width: 338, align: center"] Daily TSP Funds Return
[TR]
[TD="align: right"][/TD]
[/TR]
[/TABLE]
[/TD]
[/TR]
[/TABLE]
The 1% loss in the small caps leaves the fund up less than 1% for the year, after starting 2023 with an 11% gain in January. So much for the January Barometer which suggests when January is positive, the market has a good year. If the recent trend continues, that tendency would be in jeopardy, but here's another bullish tendency for the end of October, into the first three days of November. The 5 trading days have a 74% winning rate over the last 74 years.
Chart provided courtesy of www.sentimentrader.com
Tendencies are not certainties, and as I have mentioned a few times, history suggested a high probability that October would be positive if August and September were both down 1%. With the S&P 500 down about 4% this month, there's just two days left to make good on that one.
Here's another one -- remember the 'Magazine Cover' Indicator? It has been considered a good contrarian indicator, meaning Barron's, or other major magazine covers, have had a history of making very poor calls that, if you had done the opposite, you would have been better off. But is it true?
I found an article written 10 years ago by Josh Brown who said, "Barron’s gets it right and wrong with their covers – with no particularly discernible way to trade off of them, long or short. But the knee-jerk reflexive contrarianism on the web each weekend is just as unhelpful as blindly believing in whatever the editors choose to sell us that week from the newsstand. Grow up. It’s a magazine. And when everyone knows it’s a fade, it’s not really a fade anymore is it?"
The reason I bring it up is that Barron's recent cover is suggesting that bonds are bottoming. I might have agreed with that, but in my case, it's worse. I have been calling for a possible bottom in bonds for a couple of months now. Only time will tell if they're right, or if they will be the victim of another call that should have been faded.
And speaking of bonds, the 10-year Treasury Yield was flat on Friday and while there are some open gaps below, that 4.83% area has been stubbornly holding as support. If that gives out we should see 4.7% quickly, but if it holds it could be visiting 5% again, which has been a stck market killer. Reminder that bond yields move counter to bond prices and the Fund.
BND (bonds / F-fund) is moving counter to those yields and again, will Barron's be right in predicting a low here? A test of last year's lows near 67 is certainly a possibility. BND has been trending lower since the peak in April so it's probably overdue for a more serious bounce, but even then, it wouldn't necessarily mean it is a bottom for the F-fund.
The weekly chart of the S&P 500 shows some troubling developments as long term support was recently broken. I noted prior breaks in the trend and you can see that, after a break down or a breakout to the upside, you can get some follow through in that same direction before a retracement of the move occurs, and they can last weeks, if not months, before the S&P resumes the direction of the breakout / break down.
There were two strong rallies in early 2022 after the initial break down, before the downside resumed. In early 2023 we got a breakout above resistance in January, that quickly rolled over before the rally resumed at the end of March.
So it is possible that we get an end of year rally. There are nine weeks left in the year and that's enough time for a lot of things to happen including a major rally back up to the old broken support line. Or the downside could continue for a few more weeks before that happens, but seasonality does favor the bulls for the next few months.
There is an FOMC meeting this week with a Fed decision on interest rates on Wednesday. No changes in rates are expected.
We will also get the October jobs report on Friday.
The S&P 500 (C-fund) chart has been breaking recently. The support from the moving averages and the trend lines have easily broken down. This is a red flag as we talked about above, it could also trigger a relief rally now that that many of the bulls' stops were hit below support. Meaning, anyone who was looking to sell, or had put in order to sell when support was broken, has likely already sold, or at least holding some cash at this point, which could be ammunition for a bounce.
DWCPF (S-fund) has been beaten down over the last three months and it finds itself back down near some old support levels from 2022 and earlier in 2023. The chances of a bounce is high, but that doesn't mean things won't get much worse even after a rebound. It will all depend on a lot of factors including what the Fed does and says later this week, where bond yields go, not to mention the geopolitical events that continue to unfold.
EFA (I-fund) also broke some major support which suggests that the bear market may just be getting started, but it too can experience an oversold bounce as stocks rarely go straight down.
The dollar is near recent highs but it may be ready for a temporary double top pullback.
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.
