Stocks once again fell apart in the afternoon trading session, after a very strong morning. The Dow only lost 3-points but it gave up a 360-point earlier gain, and the Russell 2000 small caps were up 1.6% at their highs, only to close down 2.6% so someone opened up the selling spigots. The Nasdaq was on a risk off day as well. Yields fell and growth is supposed to bounce back in that case, right? That's what we've seen lately, anyway.
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One again it was the rebalancing and rotation that seemed to be the main catalyst for stocks, and perhaps surprisingly the recent drop in yields didn't help the growth stocks yesterday. The lack of a rally in stocks with yields down certainly has me concerned with those head and shoulders patterns starting to fail, whether dropping below their necklines or failing at the head test. We'll talk about that more down below in the index charts section.
Depending on how big the rally was in stocks, and how far bonds declined (or visa versa in the inverse situation) the rebalancing can shake things up quite a bit at the end of a quarter.
Do you remember how much stocks rallied off the March lows in April, May and into June last year? That made many funds over weighted in stocks compared to bonds, causing Fund rebalancing from money managers toward the end of the second quarter. Once it was done, stocks started higher again into July.
Same thing happened in September 2020 after a monster rally in July and August. Once that was done, we saw a rally into October. (There was another pullback later in October.)
Because of the October pullback, the rebalancing impact wasn't as great in December 2020, plus there's the whole holiday bullish bias thing, but here we are in March and the end of the first quarter and the market once again has pension funds, etc., over weighted in stocks after a big rally off the November lows, and light in bonds and we're seeing that same rebalancing happening now and, with 5 trading days left in the quarter, there may be a couple of more days left if it isn't done already.
It could be something more serious, but for now I'll assume it is just the game being played at the end of a quarter.
March Madness contest links: More Info. Yahoo! Tourney Pick'em.
The S&P 500 (C-fund) failed again at the top of that bull flag, and held at the bottom - assuming that is a bull flag. If it is, it's probably only a matter of time before it break to the upside - perhaps after rebalancing? But if this formation breaks to the downside, than it may be more than a bull flag. Maybe a peak, so watch the bottom of that flag for support today near 3875 for now. It's a long way down to the bottom of that red channel, if that's where it's heading.
The DWCPF (small caps / S-fund) has certainly given us some warnings with the lower low earlier this month, and the lower higher a week or so later. There's some support near 2050 but we can see a downtrend forming here so this fund needs some help or it could be down testing that blue dashed support line again. The head and shoulders here would look for some neckline support near 2025.
The EFA (I-Fund) was down with the rest of the market but it is still holding above the 50-day EMA and the support line of the red rising trading channel. The double top, or maybe a lower high, is somewhat concerning as we saw what that did to the small caps above. This too has a head an shoulders look to it.
The Dow Transportation Index rallied 1% yesterday and it seems to be happy about the rebound in the price of oil yesterday. It fell out of that rising channel and the last time it did that it got back in the next day so this is now two days below that channel. That's a bit of a warning, but that angle of incline of that channel wasn't sustainable for too much longer. The blue line may be the key support line going forward.
The VIX popped back above 20, but considering the action I'm surprised it wasn't higher.
BND (bonds / F-fund) rallied again as the relief rally in bonds is still on, but the 20-day average is getting close and could be a resistance area.
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
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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One again it was the rebalancing and rotation that seemed to be the main catalyst for stocks, and perhaps surprisingly the recent drop in yields didn't help the growth stocks yesterday. The lack of a rally in stocks with yields down certainly has me concerned with those head and shoulders patterns starting to fail, whether dropping below their necklines or failing at the head test. We'll talk about that more down below in the index charts section.
Depending on how big the rally was in stocks, and how far bonds declined (or visa versa in the inverse situation) the rebalancing can shake things up quite a bit at the end of a quarter.
Do you remember how much stocks rallied off the March lows in April, May and into June last year? That made many funds over weighted in stocks compared to bonds, causing Fund rebalancing from money managers toward the end of the second quarter. Once it was done, stocks started higher again into July.
Same thing happened in September 2020 after a monster rally in July and August. Once that was done, we saw a rally into October. (There was another pullback later in October.)
Because of the October pullback, the rebalancing impact wasn't as great in December 2020, plus there's the whole holiday bullish bias thing, but here we are in March and the end of the first quarter and the market once again has pension funds, etc., over weighted in stocks after a big rally off the November lows, and light in bonds and we're seeing that same rebalancing happening now and, with 5 trading days left in the quarter, there may be a couple of more days left if it isn't done already.
It could be something more serious, but for now I'll assume it is just the game being played at the end of a quarter.
March Madness contest links: More Info. Yahoo! Tourney Pick'em.
The S&P 500 (C-fund) failed again at the top of that bull flag, and held at the bottom - assuming that is a bull flag. If it is, it's probably only a matter of time before it break to the upside - perhaps after rebalancing? But if this formation breaks to the downside, than it may be more than a bull flag. Maybe a peak, so watch the bottom of that flag for support today near 3875 for now. It's a long way down to the bottom of that red channel, if that's where it's heading.
The DWCPF (small caps / S-fund) has certainly given us some warnings with the lower low earlier this month, and the lower higher a week or so later. There's some support near 2050 but we can see a downtrend forming here so this fund needs some help or it could be down testing that blue dashed support line again. The head and shoulders here would look for some neckline support near 2025.
The EFA (I-Fund) was down with the rest of the market but it is still holding above the 50-day EMA and the support line of the red rising trading channel. The double top, or maybe a lower high, is somewhat concerning as we saw what that did to the small caps above. This too has a head an shoulders look to it.
The Dow Transportation Index rallied 1% yesterday and it seems to be happy about the rebound in the price of oil yesterday. It fell out of that rising channel and the last time it did that it got back in the next day so this is now two days below that channel. That's a bit of a warning, but that angle of incline of that channel wasn't sustainable for too much longer. The blue line may be the key support line going forward.
The VIX popped back above 20, but considering the action I'm surprised it wasn't higher.
BND (bonds / F-fund) rallied again as the relief rally in bonds is still on, but the 20-day average is getting close and could be a resistance area.
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
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.
