Day three of the new month had a different feel but not before another morning sell off had the bulls on edge. We saw some buying of the morning decline but it was a fairly steady flat line until after 1 PM ET when the bulls took over following some Fed Talk. The gains were solid but the improvement in the charts may be the most important headline as we saw some positive outside reversal formations created. The question is whether we can trust it as the Fed Governors continue to make comments that move the market.
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The stock market turned around right after Atlanta Federal Reserve President Raphael Bostic said he’s “firmly” in favor of sticking with quarter-point hikes. That rally held into the close, and as I said, really helped some charts that were nearing the brink.
Then, after the bell, another Fed Governor said they need to raise their target interest rate level, and we saw a bit of a dip in the futures after hours trading, so what are we to believe?
The bond market usually knows before the stock market and yields were popping higher again, and also again we saw another flag formation - an "F-flag" (Oscarism), break in the opposite direction from what they tend to do. That has been happening for the last year as bullish flags break down and bear flags break up. Rising F-flags usually break down, but yesterday the 10-year Yield broke to the upside. The middle chart below is a longer term view on the 10-year yield showing where the prior high was back in October, which actually occurred about a week after the market bottomed, and that area could be a target.
The dollar has been bouncing above and below its 200-day moving average every day for the last week. Yesterday was above.
One of the widely used indicators that folks on Wall Street use are moving averages, and the relationship between the 50 and 200-day moving averages. Some use the simple moving average (MA) which, in the case of the 50-day MA, would be the average closing price of the S&P 500 over the last 50 days. The EMA, or exponential moving average, is slightly different in that uses the prior 50 closing prices, but it puts more weight on the more recent prices.
The 50-day EMA on the S&P 500 crossed back above the 200-day EMA in February after being below it since last April. Often, when they cross like that, the market experiences a little bit of a short term exhaustion in the direction of the crossover. That can cause an overbought pullback after such a crossover, and that's what we've experience in February. But the pullback has now pushed the 50-day EMA back below the 200-day EMA, although at the moment it is just 3 points below it.
The 50-day Simple Moving Average also crossed above its 200-day MA in February, and it remains above it for now. This is a better set up.
These positive crossovers can trigger investors and program traders to buy so it is important to the bulls to see that 50 EMA get back above the 200 EMA, and it's getting pretty close.
These don't flip flop very often as crossovers tend to set the tone for market direction, which is why traders are triggered by them. As a timing mechanism, crossovers are very good intermediate and longer term general market direction indicators, especially if we move into a sustained bull or bear market. However, when you get quick, sharp declines like we saw in 2020 and late 2018, they can give false signals if there's a "V" bottom reversal.
The 2022 bear market and into this year has not been a quick and sharp bear market, but rather lingering and they have been more effective indicators. So, keep an eye on this relationship as the two lines flirts with each other right now.
The S&P 500 (C-fund) turned a lower low into a positive outside reversal day on Thursday. It has been in a descending F-flag and as we mentioned before, F-flags can drag on for a while, but they tend to break in the opposite direction when they do break. The 10-year yield chart up above showed us that is not always the case. This chart clearly needs to recapture 4000 and those moving averages. The question is can it, and was yesterday's positive outside reversal day the start?
The DWCPF (S-fund) is also in a negative F-flag, but that F-flag is within a larger bull flag (blue). If this can recapture that 20-day EMA I believe the bulls will take it up to test the top of the flag pretty quickly. But if the 20-EMA holds, back down to the 50-day EMA near 1716 could be next.
The EFA (I-fund) was up but held back by the big rally in the dollar yesterday. It has been back above its 50-day EMA for three straight days after that fake out breakdown last Friday. There is a lot of resistance just above 70 but if it can get above that, an attempt at the prior highs would be very possible.
BND (bonds / F-fund) broke down yesterday with those yields moving sharply higher. One close below support isn't confirmation, but this isn't good. There are two open gaps below that could be targeted if this can't recapture 71.50 pretty 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
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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The stock market turned around right after Atlanta Federal Reserve President Raphael Bostic said he’s “firmly” in favor of sticking with quarter-point hikes. That rally held into the close, and as I said, really helped some charts that were nearing the brink.
Then, after the bell, another Fed Governor said they need to raise their target interest rate level, and we saw a bit of a dip in the futures after hours trading, so what are we to believe?
The bond market usually knows before the stock market and yields were popping higher again, and also again we saw another flag formation - an "F-flag" (Oscarism), break in the opposite direction from what they tend to do. That has been happening for the last year as bullish flags break down and bear flags break up. Rising F-flags usually break down, but yesterday the 10-year Yield broke to the upside. The middle chart below is a longer term view on the 10-year yield showing where the prior high was back in October, which actually occurred about a week after the market bottomed, and that area could be a target.
The dollar has been bouncing above and below its 200-day moving average every day for the last week. Yesterday was above.
One of the widely used indicators that folks on Wall Street use are moving averages, and the relationship between the 50 and 200-day moving averages. Some use the simple moving average (MA) which, in the case of the 50-day MA, would be the average closing price of the S&P 500 over the last 50 days. The EMA, or exponential moving average, is slightly different in that uses the prior 50 closing prices, but it puts more weight on the more recent prices.
The 50-day EMA on the S&P 500 crossed back above the 200-day EMA in February after being below it since last April. Often, when they cross like that, the market experiences a little bit of a short term exhaustion in the direction of the crossover. That can cause an overbought pullback after such a crossover, and that's what we've experience in February. But the pullback has now pushed the 50-day EMA back below the 200-day EMA, although at the moment it is just 3 points below it.
The 50-day Simple Moving Average also crossed above its 200-day MA in February, and it remains above it for now. This is a better set up.
These positive crossovers can trigger investors and program traders to buy so it is important to the bulls to see that 50 EMA get back above the 200 EMA, and it's getting pretty close.
These don't flip flop very often as crossovers tend to set the tone for market direction, which is why traders are triggered by them. As a timing mechanism, crossovers are very good intermediate and longer term general market direction indicators, especially if we move into a sustained bull or bear market. However, when you get quick, sharp declines like we saw in 2020 and late 2018, they can give false signals if there's a "V" bottom reversal.
The 2022 bear market and into this year has not been a quick and sharp bear market, but rather lingering and they have been more effective indicators. So, keep an eye on this relationship as the two lines flirts with each other right now.
The S&P 500 (C-fund) turned a lower low into a positive outside reversal day on Thursday. It has been in a descending F-flag and as we mentioned before, F-flags can drag on for a while, but they tend to break in the opposite direction when they do break. The 10-year yield chart up above showed us that is not always the case. This chart clearly needs to recapture 4000 and those moving averages. The question is can it, and was yesterday's positive outside reversal day the start?
The DWCPF (S-fund) is also in a negative F-flag, but that F-flag is within a larger bull flag (blue). If this can recapture that 20-day EMA I believe the bulls will take it up to test the top of the flag pretty quickly. But if the 20-EMA holds, back down to the 50-day EMA near 1716 could be next.
The EFA (I-fund) was up but held back by the big rally in the dollar yesterday. It has been back above its 50-day EMA for three straight days after that fake out breakdown last Friday. There is a lot of resistance just above 70 but if it can get above that, an attempt at the prior highs would be very possible.
BND (bonds / F-fund) broke down yesterday with those yields moving sharply higher. One close below support isn't confirmation, but this isn't good. There are two open gaps below that could be targeted if this can't recapture 71.50 pretty 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
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.
