Stocks were mixed on Friday, a quadruple witching expiration day, where options, and commodity and index futures expired. The Dow was down 234-points and the S&P 500 was basically flat after a late bout of selling, while small caps and the Nasdaq held onto solid gains. The I-fund was flat and bonds hold onto a small gain despite the yield on the 10-year ticking up again.
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The action was rather unimpressive given the large losses on Thursday and the failure to hold onto moderate early afternoon gains, but it was an expiration week so there's more finagling going on for some traders who are protecting and trying to get out of certain options and futures positions that expired at the end of the day.
Being that stocks had done so well in recent months and bonds were getting beaten down, pension and other types of funds that are expected to hold a certain stocks to bonds ratio will have to readjust their allocations to get that ratio back inline with their prospectuses before the 2nd quarter begins, and that could have something to do with why stocks experiences some hiccups last week. So far bonds haven't rallied so perhaps there is more rebalancing to go this week?
It's always something, but since about mid-February yields have become the catalyst for the stock market. Higher yields give more options to larger investors. Financial stocks tend to do better, but it impacts growth companies because valuations become less attractive and borrowing money could become more expensive. Generally the Fed would be considering raising interest rates in this kind of environment, but as we know, the Fed has told us all that they are holding rates where they are through 2023 so it's debatable whether stocks are actually in some trouble here.
Regardless, the stock market is paying attention to the direction of yields, and the pace at which they are rising, and it is causing some selling. Just looking at a comparison of the 10-year Treasury yield and the big tech index Nasdaq 100 shows the two basically moving in opposite directions on a daily basis.
These kind of catalyst trends come and go. Whether it's the price of oil affecting stock prices, the dollar or other currency, COVID case counts, election polls, etc., it's always something that the market is watching and reacting to, and at the moment it's yields, so we should be watching too. But as we head into the final days of the first quarter some of that may fade as money managers wind down their fund rebalancing, and portfolio window dressing is completed.
This post quadruple witching expiration week tends to have a slightly bearish bias to it, but some of that is because last week - pre-expiration week - normally has a bullish bias. Since we didn't really get that this year, perhaps the bearish bias won't be as much of a factor?
There are certainly some concerns out there, but aren't there always? Sometimes the time to be most concerned is when everything seems to be running very smoothly, like right before COVID hit the market last year. The market never saw it coming.
March Madness contest links: More Info. Yahoo! Tourney Pick'em.
The S&P 500 (C-fund) traded in a wide range again on Friday as expiration day saw a lot of jockeying for position with the end of the quarter coming up. On the chart I show what could be considered the trading channel (blue) with a couple of breakdowns below the channel just to throw us off. The question is whether that channel will hold or if another test of the 50-day EMA is coming. It wouldn't be too surprising, but it could be tough to play on a closing basis that since we see a lot of major intraday reversals in that area.
The weekly chart suggests that stocks could be on the lofty side as the S&P trades above its long term rising channel. A move down to 3800 wouldn't take much, and even if it fell to 3400, about a 13% loss from here, it would remain in the bullish rising trading channel.
The DWCPF (small caps / S-fund) fell below some key support on Friday, although it closed closer to the highs of the day after an intraday positive reversal. There's some kind of a head and shoulders pattern here so remaining above that rising neckline, and of course the 50-day EMA, seems kind of important, so the bulls start the week with a little work to do.
The EFA was up but the I-fund was given a fairly poor price, and that may be made up today, but it may actually be that the I-fund price on Thursday was too high after the late sell off that day. There's some resistance near 77 with a lot of room below if the bears want to make a move.
The Dow Transportation Index continues to hold onto that rising channel and actually closed at its second highest close ever on Friday. Only last Monday was higher. Like the price of oil climbing, the Transports are a good indicator that the economy is improving.
The VIX was down modestly after Thursday's big rally. It remains above that stubborn support line near 20, after two closes below it last week.
BND (bonds / F-fund) rallied strongly early on Friday but gave ground as the day wore on, and the yield on the 10-year battled back to close at another 52-week high at 1.74%. The trend in yields is clearly higher, so bond prices are trending lower. Is the F-fund due for relief? Yes, but sometimes trends and momentum are too strong to turn around easily.
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
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.
[TABLE="align: center"]
[TR]
[TD="align: center"] Daily TSP Funds Return
[TR]
[TD="align: right"][/TD]
[/TR]
[/TABLE]
[/TD]
[TD]
[/TD]
[TD="width: 362, align: center"]
[/TR]
[/TABLE]
The action was rather unimpressive given the large losses on Thursday and the failure to hold onto moderate early afternoon gains, but it was an expiration week so there's more finagling going on for some traders who are protecting and trying to get out of certain options and futures positions that expired at the end of the day.
Being that stocks had done so well in recent months and bonds were getting beaten down, pension and other types of funds that are expected to hold a certain stocks to bonds ratio will have to readjust their allocations to get that ratio back inline with their prospectuses before the 2nd quarter begins, and that could have something to do with why stocks experiences some hiccups last week. So far bonds haven't rallied so perhaps there is more rebalancing to go this week?
It's always something, but since about mid-February yields have become the catalyst for the stock market. Higher yields give more options to larger investors. Financial stocks tend to do better, but it impacts growth companies because valuations become less attractive and borrowing money could become more expensive. Generally the Fed would be considering raising interest rates in this kind of environment, but as we know, the Fed has told us all that they are holding rates where they are through 2023 so it's debatable whether stocks are actually in some trouble here.
Regardless, the stock market is paying attention to the direction of yields, and the pace at which they are rising, and it is causing some selling. Just looking at a comparison of the 10-year Treasury yield and the big tech index Nasdaq 100 shows the two basically moving in opposite directions on a daily basis.
These kind of catalyst trends come and go. Whether it's the price of oil affecting stock prices, the dollar or other currency, COVID case counts, election polls, etc., it's always something that the market is watching and reacting to, and at the moment it's yields, so we should be watching too. But as we head into the final days of the first quarter some of that may fade as money managers wind down their fund rebalancing, and portfolio window dressing is completed.
This post quadruple witching expiration week tends to have a slightly bearish bias to it, but some of that is because last week - pre-expiration week - normally has a bullish bias. Since we didn't really get that this year, perhaps the bearish bias won't be as much of a factor?
There are certainly some concerns out there, but aren't there always? Sometimes the time to be most concerned is when everything seems to be running very smoothly, like right before COVID hit the market last year. The market never saw it coming.
March Madness contest links: More Info. Yahoo! Tourney Pick'em.
The S&P 500 (C-fund) traded in a wide range again on Friday as expiration day saw a lot of jockeying for position with the end of the quarter coming up. On the chart I show what could be considered the trading channel (blue) with a couple of breakdowns below the channel just to throw us off. The question is whether that channel will hold or if another test of the 50-day EMA is coming. It wouldn't be too surprising, but it could be tough to play on a closing basis that since we see a lot of major intraday reversals in that area.
The weekly chart suggests that stocks could be on the lofty side as the S&P trades above its long term rising channel. A move down to 3800 wouldn't take much, and even if it fell to 3400, about a 13% loss from here, it would remain in the bullish rising trading channel.
The DWCPF (small caps / S-fund) fell below some key support on Friday, although it closed closer to the highs of the day after an intraday positive reversal. There's some kind of a head and shoulders pattern here so remaining above that rising neckline, and of course the 50-day EMA, seems kind of important, so the bulls start the week with a little work to do.
The EFA was up but the I-fund was given a fairly poor price, and that may be made up today, but it may actually be that the I-fund price on Thursday was too high after the late sell off that day. There's some resistance near 77 with a lot of room below if the bears want to make a move.
The Dow Transportation Index continues to hold onto that rising channel and actually closed at its second highest close ever on Friday. Only last Monday was higher. Like the price of oil climbing, the Transports are a good indicator that the economy is improving.
The VIX was down modestly after Thursday's big rally. It remains above that stubborn support line near 20, after two closes below it last week.
BND (bonds / F-fund) rallied strongly early on Friday but gave ground as the day wore on, and the yield on the 10-year battled back to close at another 52-week high at 1.74%. The trend in yields is clearly higher, so bond prices are trending lower. Is the F-fund due for relief? Yes, but sometimes trends and momentum are too strong to turn around easily.
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
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.
