The pullback from the recent parabolic move in the broader market indices continued on Thursday and the size of the losses is getting concerning, but the charts don't show anything concerning yet. Those small caps had gotten more overbought on a short-term basis than they ever had before, which is interesting since we have had monster rallies in small caps over the years, but the recent 5-day move was a behemoth. The I-fund felt the negative impact a big rally in the dollar yesterday, and yields were up pushing the F-fund down slightly.
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With a couple of the Magnificent 7 stocks up nicely on the day, we saw the S&P 500 (C-fund) outperform those overbought small caps indices (S-fund.) And after the bell yesterday Netflix, not a Mag 7 stock but still heavily owned, was down just modestly after reporting earnings after the bell yesterday.
It has been all or nothing with the small caps this year and after the giant 5-day rally, it's back to nothing -- at least for two days. But as I mentioned, they had gotten overbought by historic proportions before the 2 day pullback. Historically, huge bullish moves and outperformance by small caps has led to good things in the following months, but heightened volatility comes with the territory. This chart shows the MACD Histogram, which is a measure of the moving average convergences and divergences, and so far the indicator looks bullish.
When we see a negative divergence like we saw a couple of times last year where the indicator was making lower highs while the IWM (Russell 2000) was making higher highs, that's a problem. It could change but right now it's all positive. It's just those open gaps that are the possible lure.
The big rally in the dollar yesterday weighed on the stock market, but the rally did fill in one open gap and it is now testing the top of the descending trading channel. If the dollar is up again today, the pullback may continue, but if it holds at resistance, perhaps stocks can bounce back from the recent pullback.
The yield on the 10-year Treasury was up yesterday but it also remains in a down trend as it tests the short-term resistance line.
The Dow Transportation Index did pull back from its recent double / triple top (maybe quadruple) but it is now testing some interesting support levels, so the next coupe of days could be telling for this market leader.
As I mentioned on Thursday, the market is starting the normal July hiccup period for stocks, but the seasonality chart gets better again toward the end of the month.
Chart provided courtesy of www.sentimentrader.com
There's more rumors that President Biden may withdraw from the 2024 presidential race this weekend, maybe Sunday, but won't resign. How the market will react, I don't know.
The S&P 500 (C-fund) was hit hard again and the pullback is now two days old after gapping lower on Wednesday. It's testing the 20-day EMA, which can be a meaningful support area in a strong bull market. The PMO is crossing below its moving average again. Can this index be lucky enough to get a 3rd buying opportunity, rather than a sell signal, on this crossover?
The DWCPF (S-fund) has been hit hard, giving back a painful amount of the recent rally, but the chart did suggest a pullback to fill open gaps or prior peaks would be possible, and so far it hasn't been anything worse than that. Filling that first open gap down near 2020 would be a dagger in the sector rotation theory, but that's still a long way down and there are plenty of reasons to believe that may not happen, although market manipulators who missed the rally would sure like to see that.
The EFA (I-fund) was slammed by 1% on Thursday as the dollar bounced back from Wednesday's sell off. The dollar is still trending lower but it may be trying to break that trend. The open gap on the EFA near 78,50 could be in play if that 20-day EMA can't hold.
BND (bonds / F-fund) was down modestly as yields moved up slightly but again, the trend is bullish for bonds and the only concern I have for the short term is all of those open gaps below.
Thanks so much for reading! Have a great weekend!
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
Questions, comments, or issues with today's commentary? We can discuss it in the Forum.
Daily Market Commentary Archives
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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.
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With a couple of the Magnificent 7 stocks up nicely on the day, we saw the S&P 500 (C-fund) outperform those overbought small caps indices (S-fund.) And after the bell yesterday Netflix, not a Mag 7 stock but still heavily owned, was down just modestly after reporting earnings after the bell yesterday.
It has been all or nothing with the small caps this year and after the giant 5-day rally, it's back to nothing -- at least for two days. But as I mentioned, they had gotten overbought by historic proportions before the 2 day pullback. Historically, huge bullish moves and outperformance by small caps has led to good things in the following months, but heightened volatility comes with the territory. This chart shows the MACD Histogram, which is a measure of the moving average convergences and divergences, and so far the indicator looks bullish.
When we see a negative divergence like we saw a couple of times last year where the indicator was making lower highs while the IWM (Russell 2000) was making higher highs, that's a problem. It could change but right now it's all positive. It's just those open gaps that are the possible lure.
The big rally in the dollar yesterday weighed on the stock market, but the rally did fill in one open gap and it is now testing the top of the descending trading channel. If the dollar is up again today, the pullback may continue, but if it holds at resistance, perhaps stocks can bounce back from the recent pullback.
The yield on the 10-year Treasury was up yesterday but it also remains in a down trend as it tests the short-term resistance line.
The Dow Transportation Index did pull back from its recent double / triple top (maybe quadruple) but it is now testing some interesting support levels, so the next coupe of days could be telling for this market leader.
As I mentioned on Thursday, the market is starting the normal July hiccup period for stocks, but the seasonality chart gets better again toward the end of the month.
Chart provided courtesy of www.sentimentrader.com
There's more rumors that President Biden may withdraw from the 2024 presidential race this weekend, maybe Sunday, but won't resign. How the market will react, I don't know.
The S&P 500 (C-fund) was hit hard again and the pullback is now two days old after gapping lower on Wednesday. It's testing the 20-day EMA, which can be a meaningful support area in a strong bull market. The PMO is crossing below its moving average again. Can this index be lucky enough to get a 3rd buying opportunity, rather than a sell signal, on this crossover?
The DWCPF (S-fund) has been hit hard, giving back a painful amount of the recent rally, but the chart did suggest a pullback to fill open gaps or prior peaks would be possible, and so far it hasn't been anything worse than that. Filling that first open gap down near 2020 would be a dagger in the sector rotation theory, but that's still a long way down and there are plenty of reasons to believe that may not happen, although market manipulators who missed the rally would sure like to see that.
The EFA (I-fund) was slammed by 1% on Thursday as the dollar bounced back from Wednesday's sell off. The dollar is still trending lower but it may be trying to break that trend. The open gap on the EFA near 78,50 could be in play if that 20-day EMA can't hold.
BND (bonds / F-fund) was down modestly as yields moved up slightly but again, the trend is bullish for bonds and the only concern I have for the short term is all of those open gaps below.
Thanks so much for reading! Have a great weekend!
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
Questions, comments, or issues with today's commentary? We can discuss it in the Forum.
Daily Market Commentary Archives
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.
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.
