Another excellent day for the TSP funds on Friday, whether stocks or bonds, and the S-fund had another one of those returns that would be respectable for a full month -- in one day. The question is whether this is what they call a "blow off top", and a breakout leading to another leg higher? The dollar and yields cooperated by falling lower helping the situation.
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We know what's happened through December 1, but what we want to know is, what is going to happen from today on? It's a new month (first new week in a new month) and charts like the S&P 500 (C-fund), the S-fund, and the bond chart, are all up against a some potential resistance. The double top in the S&P 500 appears to be the most consequential, and it could continue its explosive advancement, but after the run we have just experienced, we have to wonder if it needs a little time to digest the recent big gains.
The world is bullish and the case for a strong move higher is evident, so I'll just play devil's advocate and look at it from a less emotional viewpoint - similar to making a case for buying a market that is free falling.
One thing I notice on the S&P 500 chart, other than the double top at the July peak, is the recent spike in volume. Often a spike in volume is associated with either an options expiration day, which is usually the 3rd Friday of the month with a quarterly expiration having even higher volume. The other time is when we get a capitulation of some sort, whether that is a nasty "get me out at any price" sell off, or in the case on Thursday, it may have been capitulation from the bears who gave up on the bearish scenario and finally started buying.
I marked some previous volume spikes with over 3 billion shares traded and often these can be turning points. Some are major turning points, and others might just produce short-term reversals. The red arrows are high volume down days, and the blue were positive days. The three prior high volume positive days all came near a peak.
So it would seem possible that last week may have marked some kind of change coming - at least in the short-term. But that's just in the S&P 500. In these following interest rate and economically sensitive indices, Transports and Russell 2000 small caps, they are breaking out above resistance, but notice that they both spent the last two or three weeks moving sideways before breaking out.
I suppose the concern would be whether the small caps can continue to rally if the S&P 500 does pull back, and I think we have seen before that it can happen. But also, after a breakout, there is often an eventual test of the breakout area at some point, which would mean that the 180 area on the IWM chart above could be tested again, which would erase Friday's gain.
The case for the price of oil falling is one based on the economic data getting weaker, which seems counter intuitive to seeing stocks blasting off. Don't stocks prefer a strong economy? Yes, but more important to the stock market are interest rates, and the direction they are going and right now investors are pricing is the fact that the Fed is likely done raising rates, and may eventually have to cut rates if the economy does falter in 2024. Oil tends to follow the direction of bond yields, and both are dropping in preparation of a potential slowdown in the economy.
The 10-Year Treasury Yield is also falling, as I said, and that helps the bond market and the F-fund. And, as we said above, stocks are enjoying this decline in yields, even though it's cause is a perceived economic slowdown.
The dollar is also falling, and this has been interesting - not because it is following yields, but because the Fed continues to rapidly reduce their balance sheet, and that would generally strengthen the dollar. Reducing the balance sheet normally be a headwind to the stock market, but clearly not right now. It's now down almost a trillion dollars off the March peak.
The S&P 500 (C-fund) had been moving sideways for a couple of weeks before Friday's breakout and test of the July peak. This could cause a double top pullback reaction, and as I mentioned above, I am intrigued by Thursday high volume spike and what it means to the rally at this stage of its development off the October lows. There are open gaps to fill, and so far we have seen no attempts by the bears to go in and fill them.
DWCPF (S-fund) had one of those days to remember. One that could make or break the month of December if it can hold, but as I mentioned, often we see a pullback to retest the breakout area before the next leg higher resumes. I say often, be cause nothing is certain and if you watch the market long enough, if feels like anything is possible in any given situation.
EFA (I-fund) is in a rising trading channel, but also pushing its nose above a rising wedge formation, as it nears the open gap from the July peak. I won't bore you with the open gaps below talk again, but you see them, right?
BND (bonds / F-fund) has been the catalyst for stocks as yields have plummeted after the 10-year yield hit 5% in October, and is now 4.23%, which is a dramatic move, and obviously a stock market moving move. But here it is near resistance in the form of the neckline of an inverted head and shoulders patterns. These patterns tend to eventually break to the upside, but it could potentially take some time to fill in the right shoulder, and that could shake up the stock market in the short-term should it happen.
Thanks so much for reading! We'll see you back here tomorrow.
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
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.
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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We know what's happened through December 1, but what we want to know is, what is going to happen from today on? It's a new month (first new week in a new month) and charts like the S&P 500 (C-fund), the S-fund, and the bond chart, are all up against a some potential resistance. The double top in the S&P 500 appears to be the most consequential, and it could continue its explosive advancement, but after the run we have just experienced, we have to wonder if it needs a little time to digest the recent big gains.
The world is bullish and the case for a strong move higher is evident, so I'll just play devil's advocate and look at it from a less emotional viewpoint - similar to making a case for buying a market that is free falling.
One thing I notice on the S&P 500 chart, other than the double top at the July peak, is the recent spike in volume. Often a spike in volume is associated with either an options expiration day, which is usually the 3rd Friday of the month with a quarterly expiration having even higher volume. The other time is when we get a capitulation of some sort, whether that is a nasty "get me out at any price" sell off, or in the case on Thursday, it may have been capitulation from the bears who gave up on the bearish scenario and finally started buying.
I marked some previous volume spikes with over 3 billion shares traded and often these can be turning points. Some are major turning points, and others might just produce short-term reversals. The red arrows are high volume down days, and the blue were positive days. The three prior high volume positive days all came near a peak.
So it would seem possible that last week may have marked some kind of change coming - at least in the short-term. But that's just in the S&P 500. In these following interest rate and economically sensitive indices, Transports and Russell 2000 small caps, they are breaking out above resistance, but notice that they both spent the last two or three weeks moving sideways before breaking out.
I suppose the concern would be whether the small caps can continue to rally if the S&P 500 does pull back, and I think we have seen before that it can happen. But also, after a breakout, there is often an eventual test of the breakout area at some point, which would mean that the 180 area on the IWM chart above could be tested again, which would erase Friday's gain.
The case for the price of oil falling is one based on the economic data getting weaker, which seems counter intuitive to seeing stocks blasting off. Don't stocks prefer a strong economy? Yes, but more important to the stock market are interest rates, and the direction they are going and right now investors are pricing is the fact that the Fed is likely done raising rates, and may eventually have to cut rates if the economy does falter in 2024. Oil tends to follow the direction of bond yields, and both are dropping in preparation of a potential slowdown in the economy.
The 10-Year Treasury Yield is also falling, as I said, and that helps the bond market and the F-fund. And, as we said above, stocks are enjoying this decline in yields, even though it's cause is a perceived economic slowdown.
The dollar is also falling, and this has been interesting - not because it is following yields, but because the Fed continues to rapidly reduce their balance sheet, and that would generally strengthen the dollar. Reducing the balance sheet normally be a headwind to the stock market, but clearly not right now. It's now down almost a trillion dollars off the March peak.
The S&P 500 (C-fund) had been moving sideways for a couple of weeks before Friday's breakout and test of the July peak. This could cause a double top pullback reaction, and as I mentioned above, I am intrigued by Thursday high volume spike and what it means to the rally at this stage of its development off the October lows. There are open gaps to fill, and so far we have seen no attempts by the bears to go in and fill them.
DWCPF (S-fund) had one of those days to remember. One that could make or break the month of December if it can hold, but as I mentioned, often we see a pullback to retest the breakout area before the next leg higher resumes. I say often, be cause nothing is certain and if you watch the market long enough, if feels like anything is possible in any given situation.
EFA (I-fund) is in a rising trading channel, but also pushing its nose above a rising wedge formation, as it nears the open gap from the July peak. I won't bore you with the open gaps below talk again, but you see them, right?
BND (bonds / F-fund) has been the catalyst for stocks as yields have plummeted after the 10-year yield hit 5% in October, and is now 4.23%, which is a dramatic move, and obviously a stock market moving move. But here it is near resistance in the form of the neckline of an inverted head and shoulders patterns. These patterns tend to eventually break to the upside, but it could potentially take some time to fill in the right shoulder, and that could shake up the stock market in the short-term should it happen.
Thanks so much for reading! We'll see you back here tomorrow.
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
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.
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.
