A late sell off spoiled a good day for the stock market on Friday but it wasn't all that bad considering the strength we saw earlier in the week. However, we come into this busy week with the indices fairly stretched to the upside, and some sluggish action on Thursday and Friday as we head into the meat of earnings season, and yet another Fed interest rate hike. The Dow is now on a 10-day winning streak, the longest in several years. Bonds (F) were up slightly, and a powerful rally in the dollar had the I-fund lag the US funds last week.
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The I-fund was down last week because of a strong rally in the dollar, but other than that is was a mostly good week for the stock funds despite a hiccup on Thursday after Netflix and Tesla reported earnings. The Nasdaq took most of those losses because the Dow posted its 10th straight positive day in a row on Friday.
That's quite a run and we haven't seen that since 2017. Not that anything that was going on in 2017 has anything to do with today, but I decided to take a look back at some 2017 Dow charts that show that last 10 day winning streak. It was also occurring during the summer months and it did precede a strong second half of trading in 2017, but right after that 10 day streak there was a pullback right afterward with a one month consolidation that found support at the 50-day EMA. That's really good bull market action.
The subsequent Dow charts below the first one look out further and show that the pullback to the 50-day EMA in August of that year was actually the low for many years to come, and was only penetrated by the COVID crash in early 2020, after a successful test of that low in late 2018.
So if history is any indicator, perhaps any pullback off this recent rally could be solid foundation for the next leg higher.
Of course the situation is a lot different today than it was back then. Inflation, while clearly waning, is something that does tend to pop back into the picture just when you think it is behind you. We have the inverted 2/10 year yield curve that has been suggesting that a recession is very possible. We also have interest rates going over 5% this week, when they were closer to 1% back in 2017. And, the Fed is reducing their balance sheet rather than expanding it as they had been in the past, and it's still the threat of inflation that is causing the tightening, so it is different this time.
The fact that the Fed is tightening the money supply does not imply that stocks can't go up, but it's a lot easier for companies to grow when this is going up, or at least remaining flat. It was reduced by another $20 billion last week. The banking crisis back in March had them temporarily opening the spigots, but it's been back on the decline since.
Source: https://www.federalreserve.gov/monetarypolicy/bst_recenttrends.htm
The Fed will announce their decision on interest rates on Wednesday afternoon, and there is still a near 100% chance of a 0.25% rate hike, so while that is already priced in the market, there's only a 28% chance of a hike at the November meeting, so if the Fed says anything to change that view, it could be a marker mover.
Big tech earnings will start rolling out this week with Microsoft reporting on Tuesday, Alphabet (aka Google) and Meta (Facebook) report on Wednesday, then Apple and Amazon report next week on August 3rd.
The S&P 500 (C-fund) was flat on Friday after an early rebound off of Thursday's losses, failed. It's just two days off a recent high and by every measure this is bullish action. The only technical issue is how extended it is above the popular moving averages. This is a busy news week for the market and the surprise move here would be more new highs before a meaningful consolidation. At this point, even if the Fed is accommodating and earnings are good, we may be seeing a sell the news reaction and maybe a rare buying opportunity, although we could have been saying that for weeks now. We did get a pull back in early July but clearly the dip buyers were ready and waiting.
DWCPF (S-fund) was down for a second straight day on Friday, after giving up a big early gain. There's support just below 1850 and an open gap below 1825 so that could be a battle this week, especially if things get volatile after the Fed. Right now the 1800 area may be the line in the sand so there is some wiggle room before we get there, if we do.
The EFA (I-fund) lagged last week but posted a gain on Friday despite the rally in the dollar. Whenever the selling comes late in the trading day in the US stocks there tends to be lag in the I-fund because of the international market closing several hours before the US markets close. Open gaps below and trading near the top of that wide blue channel makes this vulnerable up in this 74 area.
BND (F-fund) was up on Friday as it continues to dance around the 50 and 200-day EMAs. Everything I see in this chart indicates that it is looking to pull back more, but the bond market can be unpredictable and any surprises from the Fed this week could surprise this chart as well.
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
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Thanks so much 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="width: 338, align: center"] Daily TSP Funds Return
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The I-fund was down last week because of a strong rally in the dollar, but other than that is was a mostly good week for the stock funds despite a hiccup on Thursday after Netflix and Tesla reported earnings. The Nasdaq took most of those losses because the Dow posted its 10th straight positive day in a row on Friday.
That's quite a run and we haven't seen that since 2017. Not that anything that was going on in 2017 has anything to do with today, but I decided to take a look back at some 2017 Dow charts that show that last 10 day winning streak. It was also occurring during the summer months and it did precede a strong second half of trading in 2017, but right after that 10 day streak there was a pullback right afterward with a one month consolidation that found support at the 50-day EMA. That's really good bull market action.
The subsequent Dow charts below the first one look out further and show that the pullback to the 50-day EMA in August of that year was actually the low for many years to come, and was only penetrated by the COVID crash in early 2020, after a successful test of that low in late 2018.
So if history is any indicator, perhaps any pullback off this recent rally could be solid foundation for the next leg higher.
Of course the situation is a lot different today than it was back then. Inflation, while clearly waning, is something that does tend to pop back into the picture just when you think it is behind you. We have the inverted 2/10 year yield curve that has been suggesting that a recession is very possible. We also have interest rates going over 5% this week, when they were closer to 1% back in 2017. And, the Fed is reducing their balance sheet rather than expanding it as they had been in the past, and it's still the threat of inflation that is causing the tightening, so it is different this time.
The fact that the Fed is tightening the money supply does not imply that stocks can't go up, but it's a lot easier for companies to grow when this is going up, or at least remaining flat. It was reduced by another $20 billion last week. The banking crisis back in March had them temporarily opening the spigots, but it's been back on the decline since.
Source: https://www.federalreserve.gov/monetarypolicy/bst_recenttrends.htm
The Fed will announce their decision on interest rates on Wednesday afternoon, and there is still a near 100% chance of a 0.25% rate hike, so while that is already priced in the market, there's only a 28% chance of a hike at the November meeting, so if the Fed says anything to change that view, it could be a marker mover.
Big tech earnings will start rolling out this week with Microsoft reporting on Tuesday, Alphabet (aka Google) and Meta (Facebook) report on Wednesday, then Apple and Amazon report next week on August 3rd.
The S&P 500 (C-fund) was flat on Friday after an early rebound off of Thursday's losses, failed. It's just two days off a recent high and by every measure this is bullish action. The only technical issue is how extended it is above the popular moving averages. This is a busy news week for the market and the surprise move here would be more new highs before a meaningful consolidation. At this point, even if the Fed is accommodating and earnings are good, we may be seeing a sell the news reaction and maybe a rare buying opportunity, although we could have been saying that for weeks now. We did get a pull back in early July but clearly the dip buyers were ready and waiting.
DWCPF (S-fund) was down for a second straight day on Friday, after giving up a big early gain. There's support just below 1850 and an open gap below 1825 so that could be a battle this week, especially if things get volatile after the Fed. Right now the 1800 area may be the line in the sand so there is some wiggle room before we get there, if we do.
The EFA (I-fund) lagged last week but posted a gain on Friday despite the rally in the dollar. Whenever the selling comes late in the trading day in the US stocks there tends to be lag in the I-fund because of the international market closing several hours before the US markets close. Open gaps below and trading near the top of that wide blue channel makes this vulnerable up in this 74 area.
BND (F-fund) was up on Friday as it continues to dance around the 50 and 200-day EMAs. Everything I see in this chart indicates that it is looking to pull back more, but the bond market can be unpredictable and any surprises from the Fed this week could surprise this chart as well.
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.
Thanks so much 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.
