It was a bearish day for stocks on Wednesday, particularly in the small caps where the Russell 2000 lost over 1% on the day, but the dip buyers did show up in the S&P 500, Dow, and Nasdaq to pull them well off their early lows of the day. The Dow lost 69-points, and it another move higher in the dollar kept pressure on pricing in many stocks and commodities. Oil was up but that was on a supply driven headline.
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Internally market breadth was quite negative on both the NYSE and the Nasdaq, so unlike on Tuesday, the large cap tech names on the Nasdaq were also down, so the share volume ratio was also heavily under water.
The dollar moved up again, breaking the descending resistance line and closing above the 50-day EMA for a second straight day, so this could be a short term trend changer - although it did close well off the highs, which is why many stocks finished off their lows.
A multiple year chart of the dollar shows it trading sideways all this year. It had been rallying nicely into the wild Covid crash action, then spent 2020 trending lower. Since then it has stabilized in 2021 but seems to be in a tight range between 24 and 25.
Stocks have obviously done very well with the dollar holding relative flat near multi year lows, so the question will be which way this will break once that channel is taken out. That could make a huge difference for stock and commodity prices in the coming months.
With the Fed potentially imminently announcing tapering of their bond buying program at their next meeting, what would happen if they stop buying? According to bankrate.com, "The Fed is currently buying $80 billion worth of Treasury securities and $40 billion of mortgage-backed bonds each month, the largest asset purchase program in Fed history that illustrates the severity of the pandemic-induced recession. The Fed purchases those assets on the open market and then adds it to its balance sheet, which has ballooned to more than $8 trillion since the pandemic."
If that ends, or even slows down, the market has to react. But to what degree?
There's also a chance of spending and budget issues in October if things are not agreed upon and firmed in Washington by the end of the fiscal year on September 30. This could impact the dollar and cause that trading range to be broken in one direction or the other, depending on what happens. So I am expecting some volatility in the coming weeks.
Admin Note: It's time for our annual NFL Survivor Pool. It's free and anyone can join. The games start on Thursday of this week, but the deadline to join is Sunday the 12th before the first game. Go here for more info: https://www.tsptalk.com/mb/site-news-and-announcements/37405-nfl-last-man-standing-2021-a.html
The S&P 500 (C-fund) seems to test and hold at its 20-day EMA about once a month, and in between it tests and fails at that average, and moves down toward the 50-day EMA. Yesterday may have been the 20 EMA test. But with the open gap near 4450 and the 50-day EMA closer to 4420, it wouldn't be a stretch to expect one or both of those to be tested in the coming weeks. The PMO indicator is close to falling below its moving average again.
The DWCPF (S-fund) had another rough day making it back to back 0.9% losses. It did close off the lows so perhaps it is ready to flip around again, but with those open gaps below, there is a fair chance that those levels will get tested.
Taking a look at a longer term Russell 2000 small caps chart, we see that it has been trading sideways basically all year. The S-fund follows this to some extent, but there are some midcap companies in the S-fund that have performed better than a strictly small caps fund. The question is, how well can the S-fund do if these small caps start moving down toward the lower end of its range again?
The EFA (EAFE Index / I-fund) got slammed as the dollar rallied again, but also once again Japan's Nikkei Index was up almost 1% so that helped. That 81.50 area looks to be key support but there are open gaps below there that could be a draw.
The BND (bonds / F-fund) moved up yesterday to fill in the open gap created on Tuesday. It did close back above its 50-day EMA and support line, but that support line could be the bottom of a bearish looking flag.
The Dow Transportation Index was down again so it went from testing a upper resistance line, down to falling blow the support line, before closing right on top of it. It also closed back below the 100-day EMA. It's do or die time for the Transports.
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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Internally market breadth was quite negative on both the NYSE and the Nasdaq, so unlike on Tuesday, the large cap tech names on the Nasdaq were also down, so the share volume ratio was also heavily under water.
The dollar moved up again, breaking the descending resistance line and closing above the 50-day EMA for a second straight day, so this could be a short term trend changer - although it did close well off the highs, which is why many stocks finished off their lows.
A multiple year chart of the dollar shows it trading sideways all this year. It had been rallying nicely into the wild Covid crash action, then spent 2020 trending lower. Since then it has stabilized in 2021 but seems to be in a tight range between 24 and 25.
Stocks have obviously done very well with the dollar holding relative flat near multi year lows, so the question will be which way this will break once that channel is taken out. That could make a huge difference for stock and commodity prices in the coming months.
With the Fed potentially imminently announcing tapering of their bond buying program at their next meeting, what would happen if they stop buying? According to bankrate.com, "The Fed is currently buying $80 billion worth of Treasury securities and $40 billion of mortgage-backed bonds each month, the largest asset purchase program in Fed history that illustrates the severity of the pandemic-induced recession. The Fed purchases those assets on the open market and then adds it to its balance sheet, which has ballooned to more than $8 trillion since the pandemic."
If that ends, or even slows down, the market has to react. But to what degree?
There's also a chance of spending and budget issues in October if things are not agreed upon and firmed in Washington by the end of the fiscal year on September 30. This could impact the dollar and cause that trading range to be broken in one direction or the other, depending on what happens. So I am expecting some volatility in the coming weeks.
Admin Note: It's time for our annual NFL Survivor Pool. It's free and anyone can join. The games start on Thursday of this week, but the deadline to join is Sunday the 12th before the first game. Go here for more info: https://www.tsptalk.com/mb/site-news-and-announcements/37405-nfl-last-man-standing-2021-a.html
The S&P 500 (C-fund) seems to test and hold at its 20-day EMA about once a month, and in between it tests and fails at that average, and moves down toward the 50-day EMA. Yesterday may have been the 20 EMA test. But with the open gap near 4450 and the 50-day EMA closer to 4420, it wouldn't be a stretch to expect one or both of those to be tested in the coming weeks. The PMO indicator is close to falling below its moving average again.
The DWCPF (S-fund) had another rough day making it back to back 0.9% losses. It did close off the lows so perhaps it is ready to flip around again, but with those open gaps below, there is a fair chance that those levels will get tested.
Taking a look at a longer term Russell 2000 small caps chart, we see that it has been trading sideways basically all year. The S-fund follows this to some extent, but there are some midcap companies in the S-fund that have performed better than a strictly small caps fund. The question is, how well can the S-fund do if these small caps start moving down toward the lower end of its range again?
The EFA (EAFE Index / I-fund) got slammed as the dollar rallied again, but also once again Japan's Nikkei Index was up almost 1% so that helped. That 81.50 area looks to be key support but there are open gaps below there that could be a draw.
The BND (bonds / F-fund) moved up yesterday to fill in the open gap created on Tuesday. It did close back above its 50-day EMA and support line, but that support line could be the bottom of a bearish looking flag.
The Dow Transportation Index was down again so it went from testing a upper resistance line, down to falling blow the support line, before closing right on top of it. It also closed back below the 100-day EMA. It's do or die time for the Transports.
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.
