Stocks opened higher on Friday, and were off to the races after Thursday's emotional tax hike headline sell off. The Dow gained 228-points and the buying was pretty broad across all indices. Small caps led, bonds were down slightly, and the I-fund lagged for some reason, and it wasn't the dollar, which was down and usually helps the I-fund. Perhaps Monday's price will be more favorable.
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The recent choppy action near the all time highs could be setting up another breakout... or a peak. There are good arguments for either case with the bearish case showing up in many indicators, and the bullish case being the super dovish monetary policy from the Fed, along with the unprecedented government spending.
Internally the breadth of the NYSE and Nasdaq were also quite strong and lopsided to the advancing side. Buying dips hasn't been that easy lately. We had that large sell off on Thursday, but stocks were actually up just before the TSP deadline that day so it wasn't like anyone making an IFT to buy the stock funds that day was attempting to buy a dip, but they sure got lucky if they did as the market shook off the tax hike news the next day and got back all of those losses on Friday... plus some.
As you'll see in the charts, April did not give market timers much of an opportunity to any buying. They got one in January, one in February, one or two in March, and so far in April there's been really no meaningful dip.
The dollar keeps falling, as many predicted, given the spending in Washington, which was magnified tremendously after COVID hit us. Still, its only falling down to where it was in February because we had that "interesting" big rally off that February low, and that may have helped cause those pullbacks in the prior months. But it's falling again and stocks seem to be loving it. There's an open gap in the UUP chart down near 24.35 that could be a target, if not the February low.
Yields have been pulling back which has also given the growth sector some relief after the spike in yields in February and March shook the stock market up to some degree during those months. Now the chart may be looking to find some support here at the 50-day EMA in the 1.5% area. If this turns up again, investors may do some profit taking in stocks while they're near all time highs.
As we head out of April and into May, we start to hear the "sell in May and go away" mantra in our heads. Not that stocks automatically tank come May but historically, on average, most of the stock market gains have come between November and April, and the average return from May to October is closer to flat. The S&P 500 is up over 11% year to date and that's certainly a lot of meat on the bone to get chewed away in any summer consolidation.
It would be somewhat of a surprise to me if we came out of the other end of the May / October six month period with the S&P 500 still up much more than 11%, but this is not a normal year because of all of the cash being thrown around, so maybe this will be one of the big ones. I don't know. But for the next six months we should get more volatility, which means opportunities to buy and sell for those who are not buy and holders. If you are a buy and holder, you may want to buckle up because it could be a wild summer ride.
This is a big week for earnings with companies like Amazon, Microsoft, Apple, Facebook, and Google all reporting. If the market is going to take off... or peak... this may be the week it happens.
The S&P 500 (C-fund) made a new all time high in the final hour of trading on Friday, but some late selling before the close took it down a notch. It remains pinned against some overhead resistance which is likely keeping the algorithms buying as they love momentum. Once that momentum wanes however, the algos could flip and send things down in a hurry, but no sign of that yet.
The DWCPF (S-fund) had a big day on Friday after the negative reversal on Thursday, so the market had chartists leaning the wrong way in this one since we had a perfect set up for another sell off on Friday. Instead we see another attempted breakout from that large pennant formation.
The Russell 2000 Index has quite the formation going. It may be a head and shoulder pattern, but I've been calling it the Mothman formation in the forum. Can you see it?
It looks like it wants to break to the upside but it may just be forming a right shoulder, or in the Mothman case, the right wing.
The EFA (I-fund) is also pushing the upper end of its rising channel after failed breakout earlier in the week.
The Nasdaq 100 Index was up big but I can't help but look down and see all of those open gaps below. Can this index blast off without addressing them first? Not typically.
BND was flat, although the F-fund was given a slight loss. It is pushing the top of that rising channel, which may still be part of a bear flag, and also a small rising wedge, which is also a fairly bearish formation. I'm looking for yields to start to head up again and give bonds and the F-fund dome trouble. The weekly chart is below this top daily chart.
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. 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: 362, align: center"]
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The recent choppy action near the all time highs could be setting up another breakout... or a peak. There are good arguments for either case with the bearish case showing up in many indicators, and the bullish case being the super dovish monetary policy from the Fed, along with the unprecedented government spending.
Internally the breadth of the NYSE and Nasdaq were also quite strong and lopsided to the advancing side. Buying dips hasn't been that easy lately. We had that large sell off on Thursday, but stocks were actually up just before the TSP deadline that day so it wasn't like anyone making an IFT to buy the stock funds that day was attempting to buy a dip, but they sure got lucky if they did as the market shook off the tax hike news the next day and got back all of those losses on Friday... plus some.
As you'll see in the charts, April did not give market timers much of an opportunity to any buying. They got one in January, one in February, one or two in March, and so far in April there's been really no meaningful dip.
The dollar keeps falling, as many predicted, given the spending in Washington, which was magnified tremendously after COVID hit us. Still, its only falling down to where it was in February because we had that "interesting" big rally off that February low, and that may have helped cause those pullbacks in the prior months. But it's falling again and stocks seem to be loving it. There's an open gap in the UUP chart down near 24.35 that could be a target, if not the February low.
Yields have been pulling back which has also given the growth sector some relief after the spike in yields in February and March shook the stock market up to some degree during those months. Now the chart may be looking to find some support here at the 50-day EMA in the 1.5% area. If this turns up again, investors may do some profit taking in stocks while they're near all time highs.
As we head out of April and into May, we start to hear the "sell in May and go away" mantra in our heads. Not that stocks automatically tank come May but historically, on average, most of the stock market gains have come between November and April, and the average return from May to October is closer to flat. The S&P 500 is up over 11% year to date and that's certainly a lot of meat on the bone to get chewed away in any summer consolidation.
It would be somewhat of a surprise to me if we came out of the other end of the May / October six month period with the S&P 500 still up much more than 11%, but this is not a normal year because of all of the cash being thrown around, so maybe this will be one of the big ones. I don't know. But for the next six months we should get more volatility, which means opportunities to buy and sell for those who are not buy and holders. If you are a buy and holder, you may want to buckle up because it could be a wild summer ride.
This is a big week for earnings with companies like Amazon, Microsoft, Apple, Facebook, and Google all reporting. If the market is going to take off... or peak... this may be the week it happens.
The S&P 500 (C-fund) made a new all time high in the final hour of trading on Friday, but some late selling before the close took it down a notch. It remains pinned against some overhead resistance which is likely keeping the algorithms buying as they love momentum. Once that momentum wanes however, the algos could flip and send things down in a hurry, but no sign of that yet.
The DWCPF (S-fund) had a big day on Friday after the negative reversal on Thursday, so the market had chartists leaning the wrong way in this one since we had a perfect set up for another sell off on Friday. Instead we see another attempted breakout from that large pennant formation.
The Russell 2000 Index has quite the formation going. It may be a head and shoulder pattern, but I've been calling it the Mothman formation in the forum. Can you see it?
It looks like it wants to break to the upside but it may just be forming a right shoulder, or in the Mothman case, the right wing.
The EFA (I-fund) is also pushing the upper end of its rising channel after failed breakout earlier in the week.
The Nasdaq 100 Index was up big but I can't help but look down and see all of those open gaps below. Can this index blast off without addressing them first? Not typically.
BND was flat, although the F-fund was given a slight loss. It is pushing the top of that rising channel, which may still be part of a bear flag, and also a small rising wedge, which is also a fairly bearish formation. I'm looking for yields to start to head up again and give bonds and the F-fund dome trouble. The weekly chart is below this top daily chart.
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. 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.
