What a day for stocks, just as we were getting settled in for a more quiet trading period before for the long holiday weekend. The losses was a major story, but the reversal may be a bigger story. We had a sell off that saw the Dow down over 800 at the lows but ended the day down 349-points. The S&P 500 was down 114 at its lows before the midday reversal but that low on the S&P may have served a purpose. We'll discuss that below. Bond yields were down slightly (bonds flat), but the strength in the dollar shook things up. The I-fund led the US stock funds yesterday despite the rally in the dollar.
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The action was a gut punch to the bulls and it probably felt worse than the final outcome for those who were not only beaten down by the losses, but were blindsided by the shakeout after Wednesday's big rally that had most of leaning on the Santa Claus rally side. But you may find it interesting that the S&P 500 closed down 56.05 on Thursday after being up 56.82 on Wednesday. The Dow was actually up 178-points between Wednesday and Thursday, so as bad as it felt, stocks were flat to higher over the last two days.
Another interesting result of the downside yesterday was that it nearly filled the "stealth gap" on the S&P 500 that I have been mentioning since the Nov 10 CPI gap up.
The S&P 500 (C-fund) broke below recent lows after giving up all of Wednesday's big gains. The catch however, is that it reversed and closed well off the lows turning a 3% decline into a 1.45% loss. Nothing to get excited about, but the question is whether the positive afternoon momentum can rollover into today's trading, as reversal days tend to do. The chart looks bad but seasonality is still a major factor and look what they did yesterday...
The lows yesterday just missed filling in that gap from the day the CPI came out in November when everyone was saying that inflation had peaked. The close on November 9 was 3749. The low on November 10 after the CPI was 3860, so the space in between was part of one of those "stealth gaps" that we see once in a while. The low yesterday was about 3765 so it didn't quite filled, but maybe close enough? We'll probably find out today if they take things higher again.
The catalyst yesterday can be argued but a higher than expected Q3 GDP and fewer jobless clams than expected brought out the concerns that the Fed will remain hawkish on interest rates, rather than celebrating the stronger than expected economic data in this good news is bad news environment.
It wasn't exactly a capitulation kind of day as the trading volume was on the light side again, and that trigger headline driven swings as the indices become easier to push around, so if there were large money managers looking to do some late selling, whether for tax purposes or for window dressing for their end of year reports, it could have triggered a domino effect of selling yesterday morning. I'm not saying that is what happened, but it happens.
I'm sure it is coincidence given the extent of the losses, but it is interesting that day number -2 on the Christmas Day seasonality Chart, the day prior to the last trading day before Christmas, had a negative record from 1905 to 2011. Day number -3 (Wednesday) was positive, so that's a check, and here we are at day number -1, and we can see what the next 4 days have in store as far as history suggests.
Chart provided courtesy of www.sentimentrader.com
But again, in more recent years we have seen some negative weeks between Christmas and New Years or, as I have mentioned before, the action between Christmas and New Years has been more of a flipping of the pre-Christmas Day action. That could be because of the prevalence of online trading from home rather than traders taking time away from their offices during the holidays.
Chart provided courtesy of www.sentimentrader.com
I'm sorry that I am obsessing over this but I have been doing this for so long and have learned not to completely fight this historical seasonal data no matter the situation. You can be very rewarded, or very hurt if you play it wrong, and I think 2018 was one of the examples of how something so bad can turn on a dime. If you panicked and sold on Christmas Eve that year, and trading volume was high that day so it felt capitulatory, you missed out on a huge rebound into the end of the year, especially those in the TSP who used their final IFT of the month to sell before Christmas that year.
I looked back and I did take some big losses in the week leading up to Christmas in 2018, but made the right move by holding into the following week. That was certainly one of the most unusual Decembers that I can remember. This one has been interesting but we'll see what next week brings before we call it an anomaly.
Next week should have a sharp drop in trading volume, and while I probably won't do a lot of trading, I will hit the books, so to speak, to try to figure out my approach for 2023.
It will be a very busy week for me. Not only because I will spend a day traveling, but I have to wrap up the AutoTracker for 2022, announce and get prizes out to the winners, then get the 2023 version started.
Admin Note: Don't forget to login to the TSP Talk AutoTracker if you haven't for a while. Accounts that have been idle for too long won't rollover into the New Year. I'll remind everyone again during the week before New Year's but in case you won't be around, here is your reminder. If you are not already on the AutoTracker, this is a good time to start so that we track your full year in 2023. It's free. More info on creating a new account: AutoTracker - How to get started
The DWCPF (S-fund) lost 1.44% yesterday and the EFA / I-fund was down 0.82%, so the I-fund continues to outperform. Like the S&P 500, both closed well off their lows of the day after a late rally.
BND (Bonds / F-fund) was flat.
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
To get weekly or daily notifications when we post new commentary, sign up HERE.
Thanks so much for reading. Merry Christmas and Happy Hanukkah to those of you celebrating! We'll see you back here on Tuesday.
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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The action was a gut punch to the bulls and it probably felt worse than the final outcome for those who were not only beaten down by the losses, but were blindsided by the shakeout after Wednesday's big rally that had most of leaning on the Santa Claus rally side. But you may find it interesting that the S&P 500 closed down 56.05 on Thursday after being up 56.82 on Wednesday. The Dow was actually up 178-points between Wednesday and Thursday, so as bad as it felt, stocks were flat to higher over the last two days.
Another interesting result of the downside yesterday was that it nearly filled the "stealth gap" on the S&P 500 that I have been mentioning since the Nov 10 CPI gap up.
The S&P 500 (C-fund) broke below recent lows after giving up all of Wednesday's big gains. The catch however, is that it reversed and closed well off the lows turning a 3% decline into a 1.45% loss. Nothing to get excited about, but the question is whether the positive afternoon momentum can rollover into today's trading, as reversal days tend to do. The chart looks bad but seasonality is still a major factor and look what they did yesterday...
The lows yesterday just missed filling in that gap from the day the CPI came out in November when everyone was saying that inflation had peaked. The close on November 9 was 3749. The low on November 10 after the CPI was 3860, so the space in between was part of one of those "stealth gaps" that we see once in a while. The low yesterday was about 3765 so it didn't quite filled, but maybe close enough? We'll probably find out today if they take things higher again.
The catalyst yesterday can be argued but a higher than expected Q3 GDP and fewer jobless clams than expected brought out the concerns that the Fed will remain hawkish on interest rates, rather than celebrating the stronger than expected economic data in this good news is bad news environment.
It wasn't exactly a capitulation kind of day as the trading volume was on the light side again, and that trigger headline driven swings as the indices become easier to push around, so if there were large money managers looking to do some late selling, whether for tax purposes or for window dressing for their end of year reports, it could have triggered a domino effect of selling yesterday morning. I'm not saying that is what happened, but it happens.
I'm sure it is coincidence given the extent of the losses, but it is interesting that day number -2 on the Christmas Day seasonality Chart, the day prior to the last trading day before Christmas, had a negative record from 1905 to 2011. Day number -3 (Wednesday) was positive, so that's a check, and here we are at day number -1, and we can see what the next 4 days have in store as far as history suggests.
Chart provided courtesy of www.sentimentrader.com
But again, in more recent years we have seen some negative weeks between Christmas and New Years or, as I have mentioned before, the action between Christmas and New Years has been more of a flipping of the pre-Christmas Day action. That could be because of the prevalence of online trading from home rather than traders taking time away from their offices during the holidays.
Chart provided courtesy of www.sentimentrader.com
I'm sorry that I am obsessing over this but I have been doing this for so long and have learned not to completely fight this historical seasonal data no matter the situation. You can be very rewarded, or very hurt if you play it wrong, and I think 2018 was one of the examples of how something so bad can turn on a dime. If you panicked and sold on Christmas Eve that year, and trading volume was high that day so it felt capitulatory, you missed out on a huge rebound into the end of the year, especially those in the TSP who used their final IFT of the month to sell before Christmas that year.
I looked back and I did take some big losses in the week leading up to Christmas in 2018, but made the right move by holding into the following week. That was certainly one of the most unusual Decembers that I can remember. This one has been interesting but we'll see what next week brings before we call it an anomaly.
Next week should have a sharp drop in trading volume, and while I probably won't do a lot of trading, I will hit the books, so to speak, to try to figure out my approach for 2023.
It will be a very busy week for me. Not only because I will spend a day traveling, but I have to wrap up the AutoTracker for 2022, announce and get prizes out to the winners, then get the 2023 version started.
Admin Note: Don't forget to login to the TSP Talk AutoTracker if you haven't for a while. Accounts that have been idle for too long won't rollover into the New Year. I'll remind everyone again during the week before New Year's but in case you won't be around, here is your reminder. If you are not already on the AutoTracker, this is a good time to start so that we track your full year in 2023. It's free. More info on creating a new account: AutoTracker - How to get started
The DWCPF (S-fund) lost 1.44% yesterday and the EFA / I-fund was down 0.82%, so the I-fund continues to outperform. Like the S&P 500, both closed well off their lows of the day after a late rally.
BND (Bonds / F-fund) was flat.
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
To get weekly or daily notifications when we post new commentary, sign up HERE.
Thanks so much for reading. Merry Christmas and Happy Hanukkah to those of you celebrating! We'll see you back here on Tuesday.
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.
