The volatility continued and the choppy action that we were expecting after the recent rally has been playing out. That hasn't been good news this year as they have mostly led to lower prices, but will it be different this time? The gains were impressive yesterday with the Dow gaining 349-points, and large cap tech stocks leading the way, assisted by a pullback in the price of oil. Bonds were down.
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The price of oil pulled back a few dollars on Thursday, which I believe had a lot to do with yesterday's rally in stocks, but you can see that the chart shows no real signs of flipping over yet. A move below 110, or better yet 100, would be sign of a peak, but for now I have to assume this bullish move is still intact.
The Yield on the 10-year Treasury was up again and it looks like we are at a very key point as intermediate term overhead resistance meets a sharply rising support line.
With several of the charts that we watch being at or near support or resistance, I think something big may be coming to push these charts one way or the other as something builds up and needs to be released. Whether that is up or down, I wish I knew.
History suggests that a move like we've seen in the last week tends to lead to further gains, but as we also point out, most of the largest rallies historically have come during bear markets, so there's the dilemma.
I have my bets placed but as I mentioned yesterday, I am very happy with the results I've had in March so far, so I am more interested in protecting those gains right now, than pressing my bets - right or wrong.
The S&P 500 (C-fund) bounced back yesterday from Wednesday's sell off, and as we've been pointing out, prior choppy consolidations after a rally haven't worked out too well in recent months. That can change, but it wouldn't be a stretch to believe that the trading program algorithms see this pattern and it could be trigger some sell signals near these peaks, at least until this trend ends. Clearly the S&P 500 is at an interesting pivot point.
The DWCPF (small caps / S-fund) has also been flipping up and down and alternating between closing above and below its 50-day EMA (purple) for 5 straight days. That could be a bull flag forming but it is also at the top of that parallel trading channel so that could remain resistance.
The EFA (I-fund) rallied back up to its 50-day EMA, but no further. There is a little more room above that average before it hits the descending resistance line. Can it break to the upside without filling in that open gap near 70 first?
BND (Bonds / F-fund) was down modestly as the trading channel continues to hold. No sign of a low yet, but like we saw in late February, if it does break to the upside it could be a quick move, and tough to catch.
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 for reading. Have a great weekend!
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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Yesterday was a risk on kind of day as we saw oil pull back and that has been a green light for stocks. But it was more than that as we also saw things like gold, silver, and bitcoin go up, along with the usual meme stocks that investors jump on when sentiment gets more bullish. But was it too much?
Breadth was positive with about twice as many stocks advancing on the NYSE and Nasdaq than declining, and volume was even more lopsided as the heavily traded tech stock led.
This is all happening after the Fed's first interest rate hike in years, with a half dozen more projected before the end of the year, plus an additional reduction of their balance sheet. Much of this is being done because of 30 year high in inflation as they attempt a soft landing of the economy to keep rising interest rates from sending us into a recession. Of course stocks prices could go up along with everything else when inflation heats up, but historically they struggle during the Fed initial tightening period.
So, is this rally sustainable, or was it just another opportunity to sell high as we chop around near another peak? We've highlighted this chart showing that we've been down this road before. if someone believes that this bear market action is over, they can buy the dips and expect the trend to switch to the upside. But that trend hasn't changed quite yet and selling rallies at resistance has been the better play all year. I think we can see where the line in the sand is drawn.
Breadth was positive with about twice as many stocks advancing on the NYSE and Nasdaq than declining, and volume was even more lopsided as the heavily traded tech stock led.
This is all happening after the Fed's first interest rate hike in years, with a half dozen more projected before the end of the year, plus an additional reduction of their balance sheet. Much of this is being done because of 30 year high in inflation as they attempt a soft landing of the economy to keep rising interest rates from sending us into a recession. Of course stocks prices could go up along with everything else when inflation heats up, but historically they struggle during the Fed initial tightening period.
So, is this rally sustainable, or was it just another opportunity to sell high as we chop around near another peak? We've highlighted this chart showing that we've been down this road before. if someone believes that this bear market action is over, they can buy the dips and expect the trend to switch to the upside. But that trend hasn't changed quite yet and selling rallies at resistance has been the better play all year. I think we can see where the line in the sand is drawn.
The price of oil pulled back a few dollars on Thursday, which I believe had a lot to do with yesterday's rally in stocks, but you can see that the chart shows no real signs of flipping over yet. A move below 110, or better yet 100, would be sign of a peak, but for now I have to assume this bullish move is still intact.
With several of the charts that we watch being at or near support or resistance, I think something big may be coming to push these charts one way or the other as something builds up and needs to be released. Whether that is up or down, I wish I knew.
History suggests that a move like we've seen in the last week tends to lead to further gains, but as we also point out, most of the largest rallies historically have come during bear markets, so there's the dilemma.
I have my bets placed but as I mentioned yesterday, I am very happy with the results I've had in March so far, so I am more interested in protecting those gains right now, than pressing my bets - right or wrong.
The S&P 500 (C-fund) bounced back yesterday from Wednesday's sell off, and as we've been pointing out, prior choppy consolidations after a rally haven't worked out too well in recent months. That can change, but it wouldn't be a stretch to believe that the trading program algorithms see this pattern and it could be trigger some sell signals near these peaks, at least until this trend ends. Clearly the S&P 500 is at an interesting pivot point.
The DWCPF (small caps / S-fund) has also been flipping up and down and alternating between closing above and below its 50-day EMA (purple) for 5 straight days. That could be a bull flag forming but it is also at the top of that parallel trading channel so that could remain resistance.
The EFA (I-fund) rallied back up to its 50-day EMA, but no further. There is a little more room above that average before it hits the descending resistance line. Can it break to the upside without filling in that open gap near 70 first?
BND (Bonds / F-fund) was down modestly as the trading channel continues to hold. No sign of a low yet, but like we saw in late February, if it does break to the upside it could be a quick move, and tough to catch.
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 for reading. Have a great weekend!
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.
