Stocks stumbled again as Wall Street adjusts its thinking after the Fed's decision to put rate hikes on the table, albeit not in the near future. The Dow lost over 500-points on the day and the selling was broad, as only the Nasdaq was able to stay under a 1% loss. Bonds rallied, as did the dollar, and there is a lot of shifting going on right now.
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That was quite an expiration Friday, a day many of us thought could be quiet due to the options and futures contracts expiring with target prices in sight, but that's not what happened.
The numbers internally did get a little lopsided on the negative side, and that hasn't happened for a while. The NYSE share volume was nearly 7 to 1 in favor of declining issues. The Nasdaq held up a lot better at only 2 to 1 decliners to advancers.
The dollar had been stabilizing for weeks before the Fed triggered a big rally last week. It now has UUP above its 200-day EMA for the first time in months.
It's amazing, although not surprising, that the Fed's new policy of potential rate hikes by 2023 had such an impact on several markets. It seems like such a trivial thing that a comment suggesting the possibility of something happening in a couple of years (a rate hike), but the explosive rally over the last year plus off the COVID crash lows was direct a result of the Fed's easy money policies, and with interest rates near 0%, and bond yields below 1%, there wasn't a whole lot of choices for investors other than buying stocks. But just the thought of that changing may be flipping a switch.
The yield on the 10-year Treasury is not rallying on this news, however. Well, it did rally on the day of the Fed's announcement, but they immediately sold off in the coming days.
As I have said before, this action is a little confusing, but perhaps it is telling us that inflation may not be the big concern now that the Fed has shown a willingness to intervene, rather than led the economy run extremely hot.
The S&P 500 (C-fund) fell sharply on Friday, and that's now 4 down days in a row. It hasn't quite come down to test the 50-day EMA yet, but doing so would be the next test of the recent rally as the prior tests all held and the S&P moved higher each previous time. The open gaps, which have been sitting out there for some time, are still there as possible downside targets, with the one down near 4025 being the widest and perhaps could have have the greatest pull on the index.
The weekly chart of the S&P 500 shows a pullback to some support lines so I don't think too many would be surprised if stocks moved right back up this week, although the June seasonality is quite bearish for this coming week historically.
The weekly chart of the NYSE has one more additional noteworthy issue. The open gap on this weekly chart is all the way down below 13,500 so if that has any intention of getting filled, it would take pretty brutal sell off to get there. I marked the open gap from when the COVID crash began and after falling from the 14,000 area all the way down below 9000, the thought of that gap getting filled seemed like a tough task, but it did so just 8 months later, and the open gap in March of 2020 got filled in June, so gaps do get filled, even when it doesn't look feasible.
The DWCPF (S-fund) is also nearing its 50-day EMA. I marked prior tests of the average, and since February, only the one in April held. The rest saw further selling before the index turned back around. This is a good test for the small caps which had really been performing well in recent weeks.
The weekly chart of the DWCPF (S-fund) shows some possible breakdowns that could be warnings signs, but there's also a good sized bull flag forming so that 2020 area could be tested as support at the bottom of that flag during this pullback.
The EFA (I-fund) finally felt the wrath of the strong dollar on Friday and it gapped sharply lower for the second straight day, taking it from the upper resistance line, all the way below the 50-day EMA, which has been support during this rally. Can it hold yet again?
The price of oil was up slightly on Friday despite the sell off in everything else, and the strong rally in the dollar, so that's a pretty good sign of strength for oil. There is still room for it to fall yet remain in its rising channel.
The Dow Transportation Index took a second straight plunge off the 50-day EMA. The 100-day EMA is being tested now, and although fairly insignificant, there is a tiny open gap down near 14,325.
BND (bonds / F-fund) continues to surprise with another big move higher on Friday. As we mentioned, we'd expect yields to rally with higher inflation but now that the Fed is showing they are willing to fight inflation, the bond market has been popping, and actually bond traders seemed to be anticipating this a lot longer than most of us have.
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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That was quite an expiration Friday, a day many of us thought could be quiet due to the options and futures contracts expiring with target prices in sight, but that's not what happened.
The numbers internally did get a little lopsided on the negative side, and that hasn't happened for a while. The NYSE share volume was nearly 7 to 1 in favor of declining issues. The Nasdaq held up a lot better at only 2 to 1 decliners to advancers.
The dollar had been stabilizing for weeks before the Fed triggered a big rally last week. It now has UUP above its 200-day EMA for the first time in months.
It's amazing, although not surprising, that the Fed's new policy of potential rate hikes by 2023 had such an impact on several markets. It seems like such a trivial thing that a comment suggesting the possibility of something happening in a couple of years (a rate hike), but the explosive rally over the last year plus off the COVID crash lows was direct a result of the Fed's easy money policies, and with interest rates near 0%, and bond yields below 1%, there wasn't a whole lot of choices for investors other than buying stocks. But just the thought of that changing may be flipping a switch.
The yield on the 10-year Treasury is not rallying on this news, however. Well, it did rally on the day of the Fed's announcement, but they immediately sold off in the coming days.
As I have said before, this action is a little confusing, but perhaps it is telling us that inflation may not be the big concern now that the Fed has shown a willingness to intervene, rather than led the economy run extremely hot.
The S&P 500 (C-fund) fell sharply on Friday, and that's now 4 down days in a row. It hasn't quite come down to test the 50-day EMA yet, but doing so would be the next test of the recent rally as the prior tests all held and the S&P moved higher each previous time. The open gaps, which have been sitting out there for some time, are still there as possible downside targets, with the one down near 4025 being the widest and perhaps could have have the greatest pull on the index.
The weekly chart of the S&P 500 shows a pullback to some support lines so I don't think too many would be surprised if stocks moved right back up this week, although the June seasonality is quite bearish for this coming week historically.
The weekly chart of the NYSE has one more additional noteworthy issue. The open gap on this weekly chart is all the way down below 13,500 so if that has any intention of getting filled, it would take pretty brutal sell off to get there. I marked the open gap from when the COVID crash began and after falling from the 14,000 area all the way down below 9000, the thought of that gap getting filled seemed like a tough task, but it did so just 8 months later, and the open gap in March of 2020 got filled in June, so gaps do get filled, even when it doesn't look feasible.
The DWCPF (S-fund) is also nearing its 50-day EMA. I marked prior tests of the average, and since February, only the one in April held. The rest saw further selling before the index turned back around. This is a good test for the small caps which had really been performing well in recent weeks.
The weekly chart of the DWCPF (S-fund) shows some possible breakdowns that could be warnings signs, but there's also a good sized bull flag forming so that 2020 area could be tested as support at the bottom of that flag during this pullback.
The EFA (I-fund) finally felt the wrath of the strong dollar on Friday and it gapped sharply lower for the second straight day, taking it from the upper resistance line, all the way below the 50-day EMA, which has been support during this rally. Can it hold yet again?
The price of oil was up slightly on Friday despite the sell off in everything else, and the strong rally in the dollar, so that's a pretty good sign of strength for oil. There is still room for it to fall yet remain in its rising channel.
The Dow Transportation Index took a second straight plunge off the 50-day EMA. The 100-day EMA is being tested now, and although fairly insignificant, there is a tiny open gap down near 14,325.
BND (bonds / F-fund) continues to surprise with another big move higher on Friday. As we mentioned, we'd expect yields to rally with higher inflation but now that the Fed is showing they are willing to fight inflation, the bond market has been popping, and actually bond traders seemed to be anticipating this a lot longer than most of us have.
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.
