The final three trading days of last week were, for lack of a better term, crazy and may have done a good job of throwing people off the scent as to what the heck is going on. Up big, down big, up again, with a couple of intraday reversals thrown in there to get everyone to lean the wrong way. When all was said and done the TSP stock and bonds funds ended the week with gains, breaking the 3-week losing streak it had in August. The Dow gained 247-points and the tech stocks of the Nasdaq led on Friday.
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[TR]
[TD="align: center"]
[/TD]
[TD]
[/TD]
[TD="width: 338, align: center"] Daily TSP Funds Return
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[TR]
[TD="align: right"][/TD]
[/TR]
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[/TD]
[/TR]
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With the key Nvidia earnings and Jackson Hole speech from Powell behind us, has the tone been set for going forward?
Last year's Jackson Hole speech came near the end of a strong summer rally in 2022, and it eventually took the S&P down to a low of 3500 a few weeks later in early October last year. The weekly chart had already failed to get back above the 40-week average (purple) and the correction ensued.
This year stocks had been pulling back for three weeks leading into Jackson Hole but were in better shape technically and, after a lot of back and forth last week, we ended up with a positive week for stocks. So the set up looks better than 2022 but there are a lot of reasons to not like this chart or the current market environment. However, holding at the 20-week EMA for two straight weeks is not one of them.
Yes, after three straight losing weeks we were certainly due for some relief, and the 20-week moving average may turn out to be just a temporary resting area for the pullback, but the support is something and looks a lot better than the breakdown after the 2022 Jackson Hole speech when the Fed was still very early in his interest rate hiking mission. Now they are at, or near the end of, the end of the rate hiking process.
The Yield on the 10-year Treasury traded in a wide range of Friday but by the close it ended the day in the middle of that range and was just slightly higher on the day. So the resistance is still holding and, it may be too early and small to emphasize so I won't even draw it, but that may be the start of a small bear flag of last week's high.
The recent strength in the dollar has pushed it above a few layers of resistance, and that has been tough on stocks. That decline in the dollar from October of last year through January happened while the S&P 500 was bottoming last October and took it from 3500 to 4200 by late January. So, if this recent breakout above resistance is any indication of the new trend, it could be a head wind for stocks.
The Fed Balance Sheet was reduced by a modest $6 billion last week, but it is still decreasing. At the peak the balance sheet was $8.9 trillion (with a T) down to the current $8.1 trillion, or a decline of $800 billion since the peak in early 2022, and down $600 billion since this past March. We call that quantitative tightening and that is just another headwind for stocks.
This is the weekly AAII Investor Sentiment Survey chart and you can see the sentiment shifts between a bull market to a bear market, and back. The purple lines are the ratios of those who say they are bullish divided by those who say they are bearish. Currently the 0.90 ratio means there are slightly more bears than bulls. That's more typical of bear market sentiment, and when we see a ratio this low (more bears than bulls) we tend to see good things happen -- BUT ONLY WHEN IN A BULL MARKET.
The question is whether we are still in that new bull market or starting another bear market. There's nothing that suggests we are in a new bear market yet, but that evidence will lag in the indicators. In other words, if this is the start of a new bear market, we may not know officially for a few more weeks.
The August Jobs Report comes out on Friday and estimates are looking for a gain of 165,000 jobs and an unemployment rate of 3.6%. As a reminder, July's numbers were +187,000 and 3.5%, so the steady decline is probably a result of the Fed's attempt to put the breaks on the hot labor market.
[TABLE="width: 288"]
[TR]
[TD="align: center"][/TD]
[TD="align: center"] AUG est.[/TD]
[TD="align: center"] JUL[/TD]
[TD="width: 64, align: center"] JUN[/TD]
[TD="width: 64, align: center"] MAY[/TD]
[TD="width: 64, align: center"] APR[/TD]
[TD="width: 64, align: center"] MAR[/TD]
[/TR]
[TR]
[TD="width: 69, align: center"][/TD]
[TD="width: 69, align: center"] 175K[/TD]
[TD="width: 55, align: center"] 187K[/TD]
[TD="align: center"] 185K[/TD]
[TD="align: center"] 281K[/TD]
[TD="align: center"] 217K[/TD]
[TD="align: center"] 217K[/TD]
[/TR]
[/TABLE]
The PCE Prices and Personal Spending reports come out on Thursday of this week and the Fed made it very clear that they are watching these closely for evidence of hot or cooling inflation, so expect some market movement that day.
Mondays have been good to stocks this summer as we have had 8 consecutive positive Mondays. This streak may be getting a little too long and may be ready to break, but we also saw a break in a few other streaks as Wednesday and Friday of last week were positive, and those were the first gains on a Wednesday or Friday in August.
Last week was a wild one and the S&P 500 (C-fund) chart shows both promise, and concern. The rising support line off the prior lows held for a second time but so did the resistance coming off the peaks. The action on Thursday was very disturbing and literally sticks out like a sore thumb after the false breakout and negative outside reversal day, which can be ominous signs. The one in late July basically initiated the peak of the summer rally, and it's tough to expect too much from stocks after last Thursday's negative outside reversal. Bottom line, support needs to hold although a high volume test of the lows is still very possible, and if it does that and still closes above the 200-day EMA, the bulls may have something going.
DWCPF (S-fund) did try to retest its lows from the prior week and the positive reversal on Friday helped it close above its 200-day EMA yet again after flirting with a break down a few times, but you can see that overhead resistance is falling fast and it would take a positive day today in small caps to break that resistance. But then there's more resistance near 1775 where the 50-day EMA meets the old broken red support line.
The EFA (I-fund) also bounced off its 200-day EMA again but we do have another bear flag on our hands, and the last one didn't work out so well.
BND (Bonds / F-fund) gapped up last Wednesday and its been flat to down since as it may be trying to fill that gap. The question here is whether the support near 70.65 will hold, or if the resistance above 71 will give way first? That's a falling wedge formation and the upside breakout would be more common, but a breakdown wouldn't be unheard of, so it's just another chart flirting with a major pivot point.
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.
Like what you're seeing on TSP Talk? Why not Tell a Friend about us? We'd really appreciate it, and they may too.
Thanks!
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.
[TABLE="align: center"]
[TR]
[TD="align: center"]
[TD]
[/TD]
[TD="width: 338, align: center"] Daily TSP Funds Return
[TR]
[TD="align: right"][/TD]
[/TR]
[/TABLE]
[/TD]
[/TR]
[/TABLE]
With the key Nvidia earnings and Jackson Hole speech from Powell behind us, has the tone been set for going forward?
Last year's Jackson Hole speech came near the end of a strong summer rally in 2022, and it eventually took the S&P down to a low of 3500 a few weeks later in early October last year. The weekly chart had already failed to get back above the 40-week average (purple) and the correction ensued.
This year stocks had been pulling back for three weeks leading into Jackson Hole but were in better shape technically and, after a lot of back and forth last week, we ended up with a positive week for stocks. So the set up looks better than 2022 but there are a lot of reasons to not like this chart or the current market environment. However, holding at the 20-week EMA for two straight weeks is not one of them.
Yes, after three straight losing weeks we were certainly due for some relief, and the 20-week moving average may turn out to be just a temporary resting area for the pullback, but the support is something and looks a lot better than the breakdown after the 2022 Jackson Hole speech when the Fed was still very early in his interest rate hiking mission. Now they are at, or near the end of, the end of the rate hiking process.
The Yield on the 10-year Treasury traded in a wide range of Friday but by the close it ended the day in the middle of that range and was just slightly higher on the day. So the resistance is still holding and, it may be too early and small to emphasize so I won't even draw it, but that may be the start of a small bear flag of last week's high.
The recent strength in the dollar has pushed it above a few layers of resistance, and that has been tough on stocks. That decline in the dollar from October of last year through January happened while the S&P 500 was bottoming last October and took it from 3500 to 4200 by late January. So, if this recent breakout above resistance is any indication of the new trend, it could be a head wind for stocks.
The Fed Balance Sheet was reduced by a modest $6 billion last week, but it is still decreasing. At the peak the balance sheet was $8.9 trillion (with a T) down to the current $8.1 trillion, or a decline of $800 billion since the peak in early 2022, and down $600 billion since this past March. We call that quantitative tightening and that is just another headwind for stocks.
This is the weekly AAII Investor Sentiment Survey chart and you can see the sentiment shifts between a bull market to a bear market, and back. The purple lines are the ratios of those who say they are bullish divided by those who say they are bearish. Currently the 0.90 ratio means there are slightly more bears than bulls. That's more typical of bear market sentiment, and when we see a ratio this low (more bears than bulls) we tend to see good things happen -- BUT ONLY WHEN IN A BULL MARKET.
The question is whether we are still in that new bull market or starting another bear market. There's nothing that suggests we are in a new bear market yet, but that evidence will lag in the indicators. In other words, if this is the start of a new bear market, we may not know officially for a few more weeks.
The August Jobs Report comes out on Friday and estimates are looking for a gain of 165,000 jobs and an unemployment rate of 3.6%. As a reminder, July's numbers were +187,000 and 3.5%, so the steady decline is probably a result of the Fed's attempt to put the breaks on the hot labor market.
[TABLE="width: 288"]
[TR]
[TD="align: center"][/TD]
[TD="align: center"] AUG est.[/TD]
[TD="align: center"] JUL[/TD]
[TD="width: 64, align: center"] JUN[/TD]
[TD="width: 64, align: center"] MAY[/TD]
[TD="width: 64, align: center"] APR[/TD]
[TD="width: 64, align: center"] MAR[/TD]
[/TR]
[TR]
[TD="width: 69, align: center"][/TD]
[TD="width: 69, align: center"] 175K[/TD]
[TD="width: 55, align: center"] 187K[/TD]
[TD="align: center"] 185K[/TD]
[TD="align: center"] 281K[/TD]
[TD="align: center"] 217K[/TD]
[TD="align: center"] 217K[/TD]
[/TR]
[/TABLE]
The PCE Prices and Personal Spending reports come out on Thursday of this week and the Fed made it very clear that they are watching these closely for evidence of hot or cooling inflation, so expect some market movement that day.
Mondays have been good to stocks this summer as we have had 8 consecutive positive Mondays. This streak may be getting a little too long and may be ready to break, but we also saw a break in a few other streaks as Wednesday and Friday of last week were positive, and those were the first gains on a Wednesday or Friday in August.
Last week was a wild one and the S&P 500 (C-fund) chart shows both promise, and concern. The rising support line off the prior lows held for a second time but so did the resistance coming off the peaks. The action on Thursday was very disturbing and literally sticks out like a sore thumb after the false breakout and negative outside reversal day, which can be ominous signs. The one in late July basically initiated the peak of the summer rally, and it's tough to expect too much from stocks after last Thursday's negative outside reversal. Bottom line, support needs to hold although a high volume test of the lows is still very possible, and if it does that and still closes above the 200-day EMA, the bulls may have something going.
DWCPF (S-fund) did try to retest its lows from the prior week and the positive reversal on Friday helped it close above its 200-day EMA yet again after flirting with a break down a few times, but you can see that overhead resistance is falling fast and it would take a positive day today in small caps to break that resistance. But then there's more resistance near 1775 where the 50-day EMA meets the old broken red support line.
The EFA (I-fund) also bounced off its 200-day EMA again but we do have another bear flag on our hands, and the last one didn't work out so well.
BND (Bonds / F-fund) gapped up last Wednesday and its been flat to down since as it may be trying to fill that gap. The question here is whether the support near 70.65 will hold, or if the resistance above 71 will give way first? That's a falling wedge formation and the upside breakout would be more common, but a breakdown wouldn't be unheard of, so it's just another chart flirting with a major pivot point.
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.
Like what you're seeing on TSP Talk? Why not Tell a Friend about us? We'd really appreciate it, and they may too.
Thanks!
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.
