Stocks opened higher on Wednesday, hit intraday highs shortly after the opening bell, then moved mostly sideways the rest of the day and closed up, but off the highs. It was impressive that the bulls were able to hold onto most of those early gains into the close because the indices may have been due for a pause and the bears had been selling every rally before this week, but not so much this week. Whether that's because it is a pre-holiday reversal week, or because there has been a change in sentiment based on inflationary data, remains to be seen, but we should know soon enough.
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The pre / post holiday reversal tendency may or may not play a role in the next week's action, but it is certainly a possibility. We have had a lot of good news and data to send stocks higher, but has the relief rally gone too far, or is it just getting started? If this rally is NOT the pre-holiday reversal from the larger downtrend, then it is possible that today and / or tomorrow could trigger a fade from this bounce. If stocks are up the next two days, then we have the possibility of a post holiday sell off that reverses the pre-holiday rally. Get it?
This chart is from last year (2022) and it is an example of a pre / post holiday reversal surrounding Labor Day weekend.
Last Thursday, the day after Nvidia reported earnings, stocks popped early but a major negative reversal day looked like it was putting a dagger in any attempt at a rally in Nvidia and the stock market in general. Remember the big failed breakout just a week ago? Well, the less likely outcome occurred and the negative reversal turned out to be another buying opportunity for both Nvidia, and the stock market, as Nvidia just made another closing high yesterday.
The Yield on the 10-year Treasury fell slightly again, closed off its lows, but remained below some recent support. This gave investors a green light to do more buying yesterday but as the 50-day EMA comes into the picture, we have to wonder if it will act as support and possibly stall the recent rally in stocks.
The dollar also fell, but bounced later as it tested and held at the support from previous highs - areas that could continue to act as support in the coming days. But the major trend higher is broken for now and the stock market's next move may depend on whether that broken support (red) on UUP is or isn't going to lead to a larger pullback.
The Dow Transportation Index has been lagging the broader market lately but yesterday it did close back above it 50-day moving average.
The 50-day MA has been a key indicator. When the Transports trade above the average, it tends to stay above it for a while, and when it falls below it, it stays below it.
This morning we'll get the PCE Prices and Personal Spending reports before the opening bell and it could be the catalyst for either the start of a pre-holiday reversal - or it could reiterate the recent more benign inflation data that we have been getting. Either way, some sideways to down action over the next couple of days wouldn't be unusual and, as a matter of fact might be more bullish for next week's action.
We will get the August Jobs Report on Friday and estimates are looking for a gain of 165,000 jobs and an unemployment rate of 3.6%.
The S&P 500 (C-fund) has been up for four straight days heading into a major US holiday. As I have harped on, the question is whether we can trust this or is it just another holiday reversal that will reverse back next week? If it does fail, can it at least fill that open gap from back in early August first? That wouldn't be an usual place for a rally to stall, but would it be the end of this recent relief rally? The PMO indicator along the bottom shows some good activity, but often when these lines cross, it is a sign of being short-term overbought, and can trigger a pause in the rally.
DWCPF (S-fund) also has an open gap above but it may have another resistance issue near 1820 before it gets to the gap. The double bottom at the 200-day EMA this month is really encouraging, and the move above the 50-day EMA looks promising, but I still have that holiday reversal concern spinning in my head.
The EFA (I-fund) was actually down yesterday but it was leading the C and S funds this week before yesterday. The dollar was down on the day so I'm not sure exactly why this one lagged, although I saw there was some economic data out of Spain and Germany that disappointed. EFA closed 6 cents above its 50-day EMA.
BND (Bonds / F-fund) was down a bit but it may have needed a rest after Tuesday's big rally. It failed to hold at the 50-day EMA after just one close above it.
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.
Like what you're seeing on TSP Talk? Why not Tell a Friend about us? We'd really appreciate it, and they may too.
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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 pre / post holiday reversal tendency may or may not play a role in the next week's action, but it is certainly a possibility. We have had a lot of good news and data to send stocks higher, but has the relief rally gone too far, or is it just getting started? If this rally is NOT the pre-holiday reversal from the larger downtrend, then it is possible that today and / or tomorrow could trigger a fade from this bounce. If stocks are up the next two days, then we have the possibility of a post holiday sell off that reverses the pre-holiday rally. Get it?
This chart is from last year (2022) and it is an example of a pre / post holiday reversal surrounding Labor Day weekend.
Last Thursday, the day after Nvidia reported earnings, stocks popped early but a major negative reversal day looked like it was putting a dagger in any attempt at a rally in Nvidia and the stock market in general. Remember the big failed breakout just a week ago? Well, the less likely outcome occurred and the negative reversal turned out to be another buying opportunity for both Nvidia, and the stock market, as Nvidia just made another closing high yesterday.
The Yield on the 10-year Treasury fell slightly again, closed off its lows, but remained below some recent support. This gave investors a green light to do more buying yesterday but as the 50-day EMA comes into the picture, we have to wonder if it will act as support and possibly stall the recent rally in stocks.
The dollar also fell, but bounced later as it tested and held at the support from previous highs - areas that could continue to act as support in the coming days. But the major trend higher is broken for now and the stock market's next move may depend on whether that broken support (red) on UUP is or isn't going to lead to a larger pullback.
The Dow Transportation Index has been lagging the broader market lately but yesterday it did close back above it 50-day moving average.
The 50-day MA has been a key indicator. When the Transports trade above the average, it tends to stay above it for a while, and when it falls below it, it stays below it.
This morning we'll get the PCE Prices and Personal Spending reports before the opening bell and it could be the catalyst for either the start of a pre-holiday reversal - or it could reiterate the recent more benign inflation data that we have been getting. Either way, some sideways to down action over the next couple of days wouldn't be unusual and, as a matter of fact might be more bullish for next week's action.
We will get the August Jobs Report on Friday and estimates are looking for a gain of 165,000 jobs and an unemployment rate of 3.6%.
The S&P 500 (C-fund) has been up for four straight days heading into a major US holiday. As I have harped on, the question is whether we can trust this or is it just another holiday reversal that will reverse back next week? If it does fail, can it at least fill that open gap from back in early August first? That wouldn't be an usual place for a rally to stall, but would it be the end of this recent relief rally? The PMO indicator along the bottom shows some good activity, but often when these lines cross, it is a sign of being short-term overbought, and can trigger a pause in the rally.
DWCPF (S-fund) also has an open gap above but it may have another resistance issue near 1820 before it gets to the gap. The double bottom at the 200-day EMA this month is really encouraging, and the move above the 50-day EMA looks promising, but I still have that holiday reversal concern spinning in my head.
The EFA (I-fund) was actually down yesterday but it was leading the C and S funds this week before yesterday. The dollar was down on the day so I'm not sure exactly why this one lagged, although I saw there was some economic data out of Spain and Germany that disappointed. EFA closed 6 cents above its 50-day EMA.
BND (Bonds / F-fund) was down a bit but it may have needed a rest after Tuesday's big rally. It failed to hold at the 50-day EMA after just one close above it.
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.
Like what you're seeing on TSP Talk? Why not Tell a Friend about us? We'd really appreciate it, and they may too.
Thanks!
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.
