Stocks took a breather on Friday after a big 4-day rally to start the week. The Dow gained 114-points and it was one of the lone winners on the day, but 200 of those points were due to the rally in UNH, the heaviest weighted stock in the Dow, so without it, the Dow would have actually been down about 100-points which would have been more inline with the returns of the other major indices. Bonds were down sharply as yield moved higher, and the dollar was up ending a dramatic 7-day losing streak.
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The internals were quite weak with about 3 stocks down for every one positive on the NYSE, with trading volume on the NYSE even more lopsided at 5 to 1 in favor of declining volume. The Nasdaq wasn't quite as bad but still quite negative. The new highs on both the NYSE and Nasdaq still easily outpaced the new lows.
Speaking of the Nasdaq, the Nasdaq 100, which consists of the largest companies in the Nasdaq Composite, is now trading more than 8% above its 50-day moving average. That is fairly stretched and probably not a surprise given the recent rallies. The S&P 500 and the small caps of the DWCPF (S-fund) are not as bad, but still reaching levels that could mean a pullback is due, although the more we expect something to happen, it seems the less likely it occurs.
I did the same for the 200-day moving average, which again is stretched, but comparing to the post-COVID stimulus driven rally, it looks almost normal. However, there is a big difference between a market rising on near 0% interest rates, a Fed that was throwing quantitative easing money at the system, and a government that was spending like a thief using a stolen credit card on QVC, and today's environment which is quite the opposite.
With the Fed still raising interest rates, now reducing their balance sheets, and the public weaning of stimulus checks, the comparison is no contest. It's a different market.
The market is pricing in a soft landing for the economy, despite the Fed still raising interest rates, and perhaps the market has priced all of this in already, but earnings season, which will be heating up in the next couple of weeks in July, will be another major test for this year's great start for the stock market.
The final two weeks in July doesn't have the same wind at its back like the first couple of weeks where seasonality bullish played a role. There is some green toward the end of the month, typically driven by big tech earnings that start to come out about that time in the month, but in between there is a lull in that advantage. And if tech can't deliver it could change the tone. The question for investors is how much of an impact has the year and half of interest rate hikes had on their bottom line, now that the lag effect is catching up?
Chart provided courtesy of www.sentimentrader.com
There's no doubt that stocks are behaving well. It smells like a bull market, it looks like a bull market, and it feels like a bull market, so maybe what we have here is a bull market. But many short-term indicators are getting on the exhausted side, and if earnings don't beat their estimates, we could have a problem on our hands when we enter August, historically one of the two worst months for stocks over the years.
The S&P 500 (C-fund) was down slightly on Friday but it broke out of a month long consolidation last week - we called it a cup and handle formation - and this does look like normal bull market activity. It's been a pattern since the March lows and the question, mostly from the bears, is if the strong action is justified given all of the negatives that we've thrown around here for month that the market has seemed to so far ignore. There may be fundamental issues, but the chart suggests otherwise at the moment. However, even a 150 drop here would keep it in the rising channel.
The DWCPF (S-fund) has been moving straight up with large daily gains recently until Friday's 1% pullback. It certainly needed a rest and there is an open gap in the area that could be the target. It ran above the ascending blue channel last week, and that has me looking at the steeper red channel as possible the new trend. The lines of the trend are set and we'll see if dip buyers jump in this week, especially if that open gap gets filled quickly.
EFA (I-fund) has gotten a big assist from the dollar recently as the lower inflation numbers took the UUP dollar chart out to the woodshed for a beating. The I-fund is the stock fund to be in if the dollar is weak, but after that recent pounding it (the dollar) may be due for a relief rally, which could weigh on the I-fund for a bit.
BND (F-fund) was down sharply on Friday after a relief rally last week pushed it back in that bearish looking flag. Holding above the flag and the 50-day EMA will be key, otherwise that open gap near 72 could be revisited, and if that happens it would change the complexion of this chart quickly.
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
Daily Market Commentary Archives
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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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The internals were quite weak with about 3 stocks down for every one positive on the NYSE, with trading volume on the NYSE even more lopsided at 5 to 1 in favor of declining volume. The Nasdaq wasn't quite as bad but still quite negative. The new highs on both the NYSE and Nasdaq still easily outpaced the new lows.
Speaking of the Nasdaq, the Nasdaq 100, which consists of the largest companies in the Nasdaq Composite, is now trading more than 8% above its 50-day moving average. That is fairly stretched and probably not a surprise given the recent rallies. The S&P 500 and the small caps of the DWCPF (S-fund) are not as bad, but still reaching levels that could mean a pullback is due, although the more we expect something to happen, it seems the less likely it occurs.
I did the same for the 200-day moving average, which again is stretched, but comparing to the post-COVID stimulus driven rally, it looks almost normal. However, there is a big difference between a market rising on near 0% interest rates, a Fed that was throwing quantitative easing money at the system, and a government that was spending like a thief using a stolen credit card on QVC, and today's environment which is quite the opposite.
With the Fed still raising interest rates, now reducing their balance sheets, and the public weaning of stimulus checks, the comparison is no contest. It's a different market.
The market is pricing in a soft landing for the economy, despite the Fed still raising interest rates, and perhaps the market has priced all of this in already, but earnings season, which will be heating up in the next couple of weeks in July, will be another major test for this year's great start for the stock market.
The final two weeks in July doesn't have the same wind at its back like the first couple of weeks where seasonality bullish played a role. There is some green toward the end of the month, typically driven by big tech earnings that start to come out about that time in the month, but in between there is a lull in that advantage. And if tech can't deliver it could change the tone. The question for investors is how much of an impact has the year and half of interest rate hikes had on their bottom line, now that the lag effect is catching up?
Chart provided courtesy of www.sentimentrader.com
There's no doubt that stocks are behaving well. It smells like a bull market, it looks like a bull market, and it feels like a bull market, so maybe what we have here is a bull market. But many short-term indicators are getting on the exhausted side, and if earnings don't beat their estimates, we could have a problem on our hands when we enter August, historically one of the two worst months for stocks over the years.
The S&P 500 (C-fund) was down slightly on Friday but it broke out of a month long consolidation last week - we called it a cup and handle formation - and this does look like normal bull market activity. It's been a pattern since the March lows and the question, mostly from the bears, is if the strong action is justified given all of the negatives that we've thrown around here for month that the market has seemed to so far ignore. There may be fundamental issues, but the chart suggests otherwise at the moment. However, even a 150 drop here would keep it in the rising channel.
The DWCPF (S-fund) has been moving straight up with large daily gains recently until Friday's 1% pullback. It certainly needed a rest and there is an open gap in the area that could be the target. It ran above the ascending blue channel last week, and that has me looking at the steeper red channel as possible the new trend. The lines of the trend are set and we'll see if dip buyers jump in this week, especially if that open gap gets filled quickly.
EFA (I-fund) has gotten a big assist from the dollar recently as the lower inflation numbers took the UUP dollar chart out to the woodshed for a beating. The I-fund is the stock fund to be in if the dollar is weak, but after that recent pounding it (the dollar) may be due for a relief rally, which could weigh on the I-fund for a bit.
BND (F-fund) was down sharply on Friday after a relief rally last week pushed it back in that bearish looking flag. Holding above the flag and the 50-day EMA will be key, otherwise that open gap near 72 could be revisited, and if that happens it would change the complexion of this chart quickly.
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
Daily Market Commentary Archives
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.
