Stocks rallied to start the new week, following up on Friday's big gains. The Dow gained 417-points and it was the highest close since September 12 for the Dow, and the highest in the S&P 500 since September 20th. Small caps lagged and bonds were down as yields and the dollar were up, so is that a sign that we should we be selling this heavy earnings week rally?
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Microsoft and Google report earnings after the bell today so if you want to be in or out of stocks before they release those reports, today would be the day to make your move.
The chart action looked good on Monday, and recently, but there were a few things that bugged me about yesterday's action.
For one thing there was some internal sluggishness with more stocks on the Nasdaq down than up, and trading volume on both the NYSE and Nasdaq only slightly positive despite gains of over 1% in the S&P 500. This kind of explains why the broader small cap indices lagged.
Another issue was that the yield on the 10-year Treasury was up again, and so was the dollar. Perhaps we can view this as as a positive with stocks able to withstand the pressure of higher yields, but for the most part, when these go up it is a headwind for the stock market.
High Yield Corporate Bonds were up modestly, but they've been lagging the S&P 500, which concerns me.
The VIX was up, which is odd considering the gains in the S&P 500 yesterday, although the VIX usually does show relative strength on Mondays.
The Dow Transportation Index had a huge day gaining almost 3% on the day. What's the problem with the market leader having a day like that? Look where it found resistance and look at that clear as day bear flag on this chart. Now if it can break above those areas of resistance, that would change my concern, but a bear flag in a bear market is not something I like to fight.
And I will mention Chinese stocks, especially China's tech stocks, and US companies that do heavy business in China. They all got crushed yesterday -- Starbucks, Nike, Yum China, Sand Casinos, etc. Unless that crash was some kind of capitulation low, I can't see it playing out well here in the US markets.
There is a lot of resistance on the charts so further upside action could really help the situation, because resistance in a bear market is not easy to overcome.
If there is something that could spark a longer term rally - longer than a few days - perhaps this chart of BND, the bond fund, will be the catalyst. Look at just how dramatic the losses have been in bonds over the last couple of years. This ETF is down to 2016 levels. But we might interpret this as some kind of giant head and shoulders pattern. It's an awful bearish chart but in the short term this oversold fund could try to create a right shoulder if the neckline near 69 - 70 can hold. It has come down so hard, so quickly that it seems reasonable to expect some kind of a relief rally, which would help the stock market if it happens.
The S&P 500 (C-fund) ran up nicely again and it has moved about 9% from the recent lows to yesterday's highs, and now it is up against some resistance which could make or break this bear market rally. This is occurring basically on the eve of the release of the 5 most important stocks in the US as far as being market movers. Helmets and seatbelts may be required for the rest of the week, and of course that will lead into next week's interest rate hike.
The DWCPF (small caps / S-fund) is lagging the S&P 500 and that looks like an "F" flag. The bad news is, "F" flag can trend lower for some time. The good news is, they actually tend to break to the upside when the are tilted lower like this one. There are still a couple of good sized open gap above that could be upside targets, but like other charts, there's a lot of resistance in the way.
I showed the long term chart of BND (bonds / F-fund) above where it peaked around the COVID crash period but it has been falling down ever since with very little relief. It is at a long-term support line near 69 so maybe it is finally time for a meaningful bounce?
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. 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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Microsoft and Google report earnings after the bell today so if you want to be in or out of stocks before they release those reports, today would be the day to make your move.
The chart action looked good on Monday, and recently, but there were a few things that bugged me about yesterday's action.
For one thing there was some internal sluggishness with more stocks on the Nasdaq down than up, and trading volume on both the NYSE and Nasdaq only slightly positive despite gains of over 1% in the S&P 500. This kind of explains why the broader small cap indices lagged.
Another issue was that the yield on the 10-year Treasury was up again, and so was the dollar. Perhaps we can view this as as a positive with stocks able to withstand the pressure of higher yields, but for the most part, when these go up it is a headwind for the stock market.
High Yield Corporate Bonds were up modestly, but they've been lagging the S&P 500, which concerns me.
The VIX was up, which is odd considering the gains in the S&P 500 yesterday, although the VIX usually does show relative strength on Mondays.
The Dow Transportation Index had a huge day gaining almost 3% on the day. What's the problem with the market leader having a day like that? Look where it found resistance and look at that clear as day bear flag on this chart. Now if it can break above those areas of resistance, that would change my concern, but a bear flag in a bear market is not something I like to fight.
And I will mention Chinese stocks, especially China's tech stocks, and US companies that do heavy business in China. They all got crushed yesterday -- Starbucks, Nike, Yum China, Sand Casinos, etc. Unless that crash was some kind of capitulation low, I can't see it playing out well here in the US markets.
There is a lot of resistance on the charts so further upside action could really help the situation, because resistance in a bear market is not easy to overcome.
If there is something that could spark a longer term rally - longer than a few days - perhaps this chart of BND, the bond fund, will be the catalyst. Look at just how dramatic the losses have been in bonds over the last couple of years. This ETF is down to 2016 levels. But we might interpret this as some kind of giant head and shoulders pattern. It's an awful bearish chart but in the short term this oversold fund could try to create a right shoulder if the neckline near 69 - 70 can hold. It has come down so hard, so quickly that it seems reasonable to expect some kind of a relief rally, which would help the stock market if it happens.
The S&P 500 (C-fund) ran up nicely again and it has moved about 9% from the recent lows to yesterday's highs, and now it is up against some resistance which could make or break this bear market rally. This is occurring basically on the eve of the release of the 5 most important stocks in the US as far as being market movers. Helmets and seatbelts may be required for the rest of the week, and of course that will lead into next week's interest rate hike.
The DWCPF (small caps / S-fund) is lagging the S&P 500 and that looks like an "F" flag. The bad news is, "F" flag can trend lower for some time. The good news is, they actually tend to break to the upside when the are tilted lower like this one. There are still a couple of good sized open gap above that could be upside targets, but like other charts, there's a lot of resistance in the way.
I showed the long term chart of BND (bonds / F-fund) above where it peaked around the COVID crash period but it has been falling down ever since with very little relief. It is at a long-term support line near 69 so maybe it is finally time for a meaningful bounce?
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. 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.
