Stocks came roaring back on Tuesday, after Monday's flaky action and failed rally. The Dow gained 754-points and the rally was broad with a lot of crooked number percentage gains across the board. Trading volume was nearly 10 to 1 in favor of advancers and that is quite meaningful, but is it another trap? Small caps and the Nasdaq led on the upside, and bonds were down slightly. The dollar was down again helping prices move higher across the board, including oil.
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The trickery is all around us in these last few days, and I don't know about you, but the whipsaws have given me whiplash. We saw a 2nd day in the last 3 of advancing volume beating descending volume by nearly 9 to 1 and that can be a sign of a low, but the charts still have some problems.
The biggest question now is, has all of the awful news been priced in, or is the economic "hurricane" that JP Morgan chief Jamie Dimon formatted in June, still unfolding? Can the market rally while the Fed is still dramatically tightening their monetary policy? It doesn't feel like we're in a recession, but that's all but official.
I had been expecting a big bear market bounce but the action has been more sideways in recent weeks, and that has created a bear flag on the chart. Back in late June we had an open gap on the chart at 4017, and the 50-day EMA was right in that area as well, so I had been anticipating a move in that direction. But the 50-day EMA is moving lower every day now, and after yesterday it is down to 3950. The high yesterday on the S&P 500 was 3940 so it is basically there. Now whether it can get past that and go fill that gap above 4000 remains to be seen, but it hasn't closed above the 50-day EMA since mid-April.
There is so much going on on that chart above and depending on whether you are a bull or a bear, you may see things a little differently. The action yesterday was good and perhaps there is some upside momentum left, but Monday's failed rally reminded us that in a bear market, sometimes you have to sell when you can, and not when you have to.
A move to fill the open gap at 4017 would be another gain of about 2%. The 50-day EMA is less than 10 points away, or about 0.25%. The 200-day EMA is almost 7% higher, if you think that is a possibility.
The dollar has been falling off its highs but it is nearing a series of support levels. The pullback has given the recently beaten down commodities some relief, including the price of oil.
Oil has bounced about 11% off it recent low and is now approaching the top of its descending trading channel, so that will be a test. We all want lower gas prices but the concern is that falling oil prices could mean a decrease in demand because of economic pressure. So with the price of gas too high, higher oil prices isn't good, and lower prices may mean economic issues, so it's tough get a good read. We'll just have to see if the channel holds or if we breakout above the resistance.
Copper is another good gauge for the economy and you can see what has happened to it over the last month. There is a possible break above resistance going on now, but we'll have to see if there are any interested buyers at this level.
The Dow Transportation Index is another economic sensitive index and it had a big day yesterday to go along with the rest of the market. It closed just slightly above its 50-day EMA yesterday, an area that has held this index back several times this year. One difference this time is that it made a higher high over the late June peak so perhaps the trend is trying to change?
This HYG High Yield Corporate Bond chart has been key in pointing the way for the stock market but unfortunately it too has been very choppy recently as it fell sharply on Monday after testing the 50-day EMA and then bounced back to test it again on Tuesday. The bad news is the obvious bear flag pattern. There's no guarantees that a bear flag will break down, but that's what they tend to do, and charts also tend to stall at the 50-day EMA in a bear market. This could breakout, but it would have to break some typical technical tendencies to do so.
Netflix reported earnings after the bell yesterday and was trading higher after hours. They have been beaten down badly all year and they topped earnings and subscriber count estimates. The bad news that they are calling good news is that they only lost a million subscribers, and not the two million many were expecting.
As I said yesterday after Monday's horrible negative reversal, "If they appear to want us to be selling, maybe that means buying into this weakness is the better play?" Well, did they try to get us to buy during yesterday's rally, and why would that be? There's now more hard work to do to get further up on many charts so if "they" want to sell again, they'd want us to be buying again here. Do you take the bait or wait?
Admin note: I don't know what happened at the TSP offices on Monday, but they did not post Monday's share prices until early on Tuesday afternoon. So, if you were wondering why I hadn't updated our prices or processed the AutoTracker on Monday night, that was why. They are struggling over there at the TSP.
We looked at the S&P 500 (C-fund) chart above so here's the DWCPF (S-fund): It looks similar and there is a little room on the upside of the bear flag, but the 50-day EMA is at 1661, just 10 more points above yesterday's high. The open gap is just over 1700 if that becomes the target.
EFA (I-fund) has had a few bouts with the 50-day EMA so getting up near 64 could be a good possibility, especially if the dollar pulls back a little more. 66 is another possibility if the upper resistance line and the open gap get tested. But the trend is down and selling rallies in those areas sounds like a good idea until we start seeing some breakouts above resistance.
BND (Bonds / F-fund) has moved oddly sideways on Monday and Tuesday - one day that saw a nasty negative reversal sell off in the stock market, and the next a major league rally of 2-3%. It seems to be percolating in that bullish looking flag but like the other charts, it is dealing with that 50-day EMA as resistance.
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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The trickery is all around us in these last few days, and I don't know about you, but the whipsaws have given me whiplash. We saw a 2nd day in the last 3 of advancing volume beating descending volume by nearly 9 to 1 and that can be a sign of a low, but the charts still have some problems.
The biggest question now is, has all of the awful news been priced in, or is the economic "hurricane" that JP Morgan chief Jamie Dimon formatted in June, still unfolding? Can the market rally while the Fed is still dramatically tightening their monetary policy? It doesn't feel like we're in a recession, but that's all but official.
I had been expecting a big bear market bounce but the action has been more sideways in recent weeks, and that has created a bear flag on the chart. Back in late June we had an open gap on the chart at 4017, and the 50-day EMA was right in that area as well, so I had been anticipating a move in that direction. But the 50-day EMA is moving lower every day now, and after yesterday it is down to 3950. The high yesterday on the S&P 500 was 3940 so it is basically there. Now whether it can get past that and go fill that gap above 4000 remains to be seen, but it hasn't closed above the 50-day EMA since mid-April.
There is so much going on on that chart above and depending on whether you are a bull or a bear, you may see things a little differently. The action yesterday was good and perhaps there is some upside momentum left, but Monday's failed rally reminded us that in a bear market, sometimes you have to sell when you can, and not when you have to.
A move to fill the open gap at 4017 would be another gain of about 2%. The 50-day EMA is less than 10 points away, or about 0.25%. The 200-day EMA is almost 7% higher, if you think that is a possibility.
The dollar has been falling off its highs but it is nearing a series of support levels. The pullback has given the recently beaten down commodities some relief, including the price of oil.
Oil has bounced about 11% off it recent low and is now approaching the top of its descending trading channel, so that will be a test. We all want lower gas prices but the concern is that falling oil prices could mean a decrease in demand because of economic pressure. So with the price of gas too high, higher oil prices isn't good, and lower prices may mean economic issues, so it's tough get a good read. We'll just have to see if the channel holds or if we breakout above the resistance.
Copper is another good gauge for the economy and you can see what has happened to it over the last month. There is a possible break above resistance going on now, but we'll have to see if there are any interested buyers at this level.
The Dow Transportation Index is another economic sensitive index and it had a big day yesterday to go along with the rest of the market. It closed just slightly above its 50-day EMA yesterday, an area that has held this index back several times this year. One difference this time is that it made a higher high over the late June peak so perhaps the trend is trying to change?
This HYG High Yield Corporate Bond chart has been key in pointing the way for the stock market but unfortunately it too has been very choppy recently as it fell sharply on Monday after testing the 50-day EMA and then bounced back to test it again on Tuesday. The bad news is the obvious bear flag pattern. There's no guarantees that a bear flag will break down, but that's what they tend to do, and charts also tend to stall at the 50-day EMA in a bear market. This could breakout, but it would have to break some typical technical tendencies to do so.
Netflix reported earnings after the bell yesterday and was trading higher after hours. They have been beaten down badly all year and they topped earnings and subscriber count estimates. The bad news that they are calling good news is that they only lost a million subscribers, and not the two million many were expecting.
As I said yesterday after Monday's horrible negative reversal, "If they appear to want us to be selling, maybe that means buying into this weakness is the better play?" Well, did they try to get us to buy during yesterday's rally, and why would that be? There's now more hard work to do to get further up on many charts so if "they" want to sell again, they'd want us to be buying again here. Do you take the bait or wait?
Admin note: I don't know what happened at the TSP offices on Monday, but they did not post Monday's share prices until early on Tuesday afternoon. So, if you were wondering why I hadn't updated our prices or processed the AutoTracker on Monday night, that was why. They are struggling over there at the TSP.
We looked at the S&P 500 (C-fund) chart above so here's the DWCPF (S-fund): It looks similar and there is a little room on the upside of the bear flag, but the 50-day EMA is at 1661, just 10 more points above yesterday's high. The open gap is just over 1700 if that becomes the target.
EFA (I-fund) has had a few bouts with the 50-day EMA so getting up near 64 could be a good possibility, especially if the dollar pulls back a little more. 66 is another possibility if the upper resistance line and the open gap get tested. But the trend is down and selling rallies in those areas sounds like a good idea until we start seeing some breakouts above resistance.
BND (Bonds / F-fund) has moved oddly sideways on Monday and Tuesday - one day that saw a nasty negative reversal sell off in the stock market, and the next a major league rally of 2-3%. It seems to be percolating in that bullish looking flag but like the other charts, it is dealing with that 50-day EMA as resistance.
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.
