The indices were mixed on Thursday but broader early gains, triggered by a stronger than expected GDP report, vanished as investors anticipated earnings from Apple and Amazon after the bell. The Dow had a solid day gaining almost 200-points with the help of the boring names like Caterpillar and Boeing, but we saw the morning rally fade as the day wore on and the indices closed near their lows. After the bell we saw another leg down in the futures due to more disappointing earnings. The indices were mixed with the Nasdaq and S&P lagging, while small caps held up well, although they also gave up some big early gains.
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Several weeks ago we talked about what was pushing the market down and we were talking macro stuff like inflation and rising interest rates, but we were saying that the market had not priced in how those would effect earnings yet. Despite some misses from Microsoft, Google, and Facebook, the indices were still having a good week, but yesterday after the bell Amazon fell about 14% last I checked, and that was after it was down during the trading day.
Apple reported about 30 minutes later and if you were hoping for a market saving report, it wasn't really there. It "only" traded down about 3% after hours, but that was after losing 3% during the trading day, so these stocks are getting hit hard.
The question is, have they been hit hard enough now at this point to make them bargains? And can this be the last straw that finally triggers a capitulation ("I give up") low? Well, we need to see a lot of volume to get to that point, and with the Fed on deck, and to a lesser degree the midterm elections in a couple of weeks, it's tough to say because the outcomes of both of those events may determine how much more downside we could see, if any.
The futures just opened for the evening session on Thursday after those reports and the losses were actually quite moderate, considering. That could change by the opening bell, but the S&P futures were down about 20 points, and the Nasdaq about 75. Small caps were flat.
In the, "let's watch paint dry" charts, the 10-year Treasury Yield fell sharply and dropped below 4% for the first time in a couple of weeks, but that did not buoy the stock market. The dollar seems to have taken the lead on this because it bounced back yesterday and the stock market did react to that with more selling.
The dollar moved back above its 50-day EMA, which we have mentioned has held for the last year except for a couple of days here and there. There are some open gaps overhead so the the question here is whether the chart is just doing some clean up and filling those gaps, or if this headed toward those recent highs again? It does look like a bull flag.
The Dow Transportation Index was up over 1% in early trading on Thursday and depending how you drew your bear flag, it was looking like it was going to break to the upside, but now I don't know. It closed down on the day after backing off from some tough resistance areas, including what could be the top of a bear flag (the red one.) Being one of the leaders of the market, this chart needs help fast.
It's Friday and stocks were actually having a good week, but we'll have to see how the indices react to the Apple and Amazon reports. And of course investors now have to position themselves for next week's interest rate hike and any monetary policy changes the Fed might have in store for the economy.
The S&P 500 (C-fund) has had a good run off the lows but it is running into some bear market headwinds. It closed back below the 50-day EMA yesterday and with the futures down 20-points as I write this, it's going to be close as to which side it closes on to end the week, but as of now the downside has the edge. If that is a bear flag then we could see a move down to the 3700 area, and then it has to hold because a breakdown of the flag would give us a target below what we can see on this chart, so let's not go there yet.
The DWCPF (small caps / S-fund) is really triggering of the yields than the large caps and the recent decline in the 10-year Treasury Yield seems to have helped the small caps outperform in recent days. So keep an eye on that yield chart if you are deciding whether you want to buy or sell some S-fund. But that bear flag suggests bad things so it needs some help quickly, or else...
The EFA (I-fund) was down sharply and the move higher in the dollar yesterday was part of the problem.
BND (bonds / F-fund) continues to bounce off that long-term support line that I showed a couple of times this week. This was certainly overdue, but how much of a bounce can we get? If the economy shows signs of more weakness we could see more money in the bond market, and at that point the stock market might have to do some serious thinking. Yes, yields and interest rates may come down, but only because the economy would be heading into a recession. You see the problem?
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 so much for reading. Have a great weekend!
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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Several weeks ago we talked about what was pushing the market down and we were talking macro stuff like inflation and rising interest rates, but we were saying that the market had not priced in how those would effect earnings yet. Despite some misses from Microsoft, Google, and Facebook, the indices were still having a good week, but yesterday after the bell Amazon fell about 14% last I checked, and that was after it was down during the trading day.
Apple reported about 30 minutes later and if you were hoping for a market saving report, it wasn't really there. It "only" traded down about 3% after hours, but that was after losing 3% during the trading day, so these stocks are getting hit hard.
The question is, have they been hit hard enough now at this point to make them bargains? And can this be the last straw that finally triggers a capitulation ("I give up") low? Well, we need to see a lot of volume to get to that point, and with the Fed on deck, and to a lesser degree the midterm elections in a couple of weeks, it's tough to say because the outcomes of both of those events may determine how much more downside we could see, if any.
The futures just opened for the evening session on Thursday after those reports and the losses were actually quite moderate, considering. That could change by the opening bell, but the S&P futures were down about 20 points, and the Nasdaq about 75. Small caps were flat.
In the, "let's watch paint dry" charts, the 10-year Treasury Yield fell sharply and dropped below 4% for the first time in a couple of weeks, but that did not buoy the stock market. The dollar seems to have taken the lead on this because it bounced back yesterday and the stock market did react to that with more selling.
The dollar moved back above its 50-day EMA, which we have mentioned has held for the last year except for a couple of days here and there. There are some open gaps overhead so the the question here is whether the chart is just doing some clean up and filling those gaps, or if this headed toward those recent highs again? It does look like a bull flag.
The Dow Transportation Index was up over 1% in early trading on Thursday and depending how you drew your bear flag, it was looking like it was going to break to the upside, but now I don't know. It closed down on the day after backing off from some tough resistance areas, including what could be the top of a bear flag (the red one.) Being one of the leaders of the market, this chart needs help fast.
It's Friday and stocks were actually having a good week, but we'll have to see how the indices react to the Apple and Amazon reports. And of course investors now have to position themselves for next week's interest rate hike and any monetary policy changes the Fed might have in store for the economy.
The S&P 500 (C-fund) has had a good run off the lows but it is running into some bear market headwinds. It closed back below the 50-day EMA yesterday and with the futures down 20-points as I write this, it's going to be close as to which side it closes on to end the week, but as of now the downside has the edge. If that is a bear flag then we could see a move down to the 3700 area, and then it has to hold because a breakdown of the flag would give us a target below what we can see on this chart, so let's not go there yet.
The DWCPF (small caps / S-fund) is really triggering of the yields than the large caps and the recent decline in the 10-year Treasury Yield seems to have helped the small caps outperform in recent days. So keep an eye on that yield chart if you are deciding whether you want to buy or sell some S-fund. But that bear flag suggests bad things so it needs some help quickly, or else...
The EFA (I-fund) was down sharply and the move higher in the dollar yesterday was part of the problem.
BND (bonds / F-fund) continues to bounce off that long-term support line that I showed a couple of times this week. This was certainly overdue, but how much of a bounce can we get? If the economy shows signs of more weakness we could see more money in the bond market, and at that point the stock market might have to do some serious thinking. Yes, yields and interest rates may come down, but only because the economy would be heading into a recession. You see the problem?
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 so much for reading. Have a great weekend!
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.
