The Dow was up triple digits yesterday, the Nasdaq was down triple digits, the S&P 500 was flat, and small caps were down sharply. What a mess in front of today - one of the busiest days of the year for stocks. Bonds were up with yields falling lower, the dollar was down after a choppy day. It was just a lot of pushing and pulling after Monday's big rally, but here comes some data that may help give some clarity as earnings were released after the bell yesterday, and of course the Fed delivers their policy statement later today.
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Microsoft and Alphabet (aka Google) reported after the bell yesterday and both beat estimates but they were trading flat to down in after hours trading. Alphabet was down about 5% and Microsoft was flat lining, which isn't the worst thing to happen given the setup for a sell the news reaction.
As we talked about the other day, when stocks are priced for perfection, there is little room for error and a modest beat on earnings is probably a recipe for profit taking. Microsoft, one of the biggest companies in the world, is up about 33% since the October lows.
AMD, a major semiconductor company, also reported earnings after the bell yesterday and it was down 6% in after hours trading, after being down 3% during the day.
So we could have some pressure on stocks early today, especially in the Nasdaq, but of course the Fed is on deck to give their FOMC policy statement at 2 PM ET, and that could change everything. Here's a chart going back to the start of 2023 showing how the market performed around prior Fed meeting days.
Bottom line, strong markets tend to stay stronger than we think is reasonable, but once they turn they can move in the opposite direction in a hurry. Last August was a good example. The Fed and earnings moved stocks up for a few more days in late July, on top of a big May to July rally, but by August the selling was on. In late October, it was the opposite story. Both of those instances coincided with quarterly earnings released from the Magnificent 7 stocks, just like this month.
We can see that the Fed has the power to change the market's direction, and maybe we do get a sell the news reaction to earnings and from a Fed that's may not be as dovish as investors had thought, but take a look at this data from sentimentrader.com regarding market action a year after this current three month winning streak.
- The S&P 500 is on the verge of registering its third straight up month, with the third month being January
- We refer to an up November, December, and January as a "November-January Trifecta"
- Historically, the market has performed well during the 12 months following a November-January Trifecta
Chart provided courtesy of www.sentimentrader.com
That's pretty impressive, so depending on your time horizon and tolerance for risk and volatility, a short-term pullback but longer term rally could be in the cards.
Yields were down and broke below some solid report in front of the Fed decision, and the dollar was up early but it reversed lower by the close. The indices were so mixed that it seemed more random than anything, with investors on the edge of their seat waiting for the information before making their next move.
Buckle up!
The S&P 500 (C-fund) stayed pinned to the rising overhead resistance. That is a positive trend but it also looks like a possible large "F" flag which tend to eventually break down, but you never know when. Right now a pullback to about 4800 would put a test to some serious support. A move above that resistance could turn that overhead resistance into new support. A lot can happen today.
DWCPF (S-fund) pulled back yesterday giving back some of Monday's big gain, but the chart still looks fairly bullish. That could certainly change if support fails on hawkish news. The 1925 area has some support and the 1875 area could be the line in the sand for the bulls.
The EFA (I-fund) has been churning sideways and, depending how you draw your trend lines, there are some bull flag formations that catch my eye. Unless this is a big lure to get investors leaning on the wrong side, this chart suggests an eventual breakout to the upside, although another test of the bottom of the flag first is not out of the question.
BND (bonds, F-fund) continues to form a bull flag so the suggestion is that a breakout to the upside is coming, which would take bond yields lower, and as we saw up above, the 10-year Treasury Yield fell back below its 200-day EMA support yesterday.
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.
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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Microsoft and Alphabet (aka Google) reported after the bell yesterday and both beat estimates but they were trading flat to down in after hours trading. Alphabet was down about 5% and Microsoft was flat lining, which isn't the worst thing to happen given the setup for a sell the news reaction.
As we talked about the other day, when stocks are priced for perfection, there is little room for error and a modest beat on earnings is probably a recipe for profit taking. Microsoft, one of the biggest companies in the world, is up about 33% since the October lows.
AMD, a major semiconductor company, also reported earnings after the bell yesterday and it was down 6% in after hours trading, after being down 3% during the day.
So we could have some pressure on stocks early today, especially in the Nasdaq, but of course the Fed is on deck to give their FOMC policy statement at 2 PM ET, and that could change everything. Here's a chart going back to the start of 2023 showing how the market performed around prior Fed meeting days.
Bottom line, strong markets tend to stay stronger than we think is reasonable, but once they turn they can move in the opposite direction in a hurry. Last August was a good example. The Fed and earnings moved stocks up for a few more days in late July, on top of a big May to July rally, but by August the selling was on. In late October, it was the opposite story. Both of those instances coincided with quarterly earnings released from the Magnificent 7 stocks, just like this month.
We can see that the Fed has the power to change the market's direction, and maybe we do get a sell the news reaction to earnings and from a Fed that's may not be as dovish as investors had thought, but take a look at this data from sentimentrader.com regarding market action a year after this current three month winning streak.
- The S&P 500 is on the verge of registering its third straight up month, with the third month being January
- We refer to an up November, December, and January as a "November-January Trifecta"
- Historically, the market has performed well during the 12 months following a November-January Trifecta
Chart provided courtesy of www.sentimentrader.com
That's pretty impressive, so depending on your time horizon and tolerance for risk and volatility, a short-term pullback but longer term rally could be in the cards.
Yields were down and broke below some solid report in front of the Fed decision, and the dollar was up early but it reversed lower by the close. The indices were so mixed that it seemed more random than anything, with investors on the edge of their seat waiting for the information before making their next move.
Buckle up!
The S&P 500 (C-fund) stayed pinned to the rising overhead resistance. That is a positive trend but it also looks like a possible large "F" flag which tend to eventually break down, but you never know when. Right now a pullback to about 4800 would put a test to some serious support. A move above that resistance could turn that overhead resistance into new support. A lot can happen today.
DWCPF (S-fund) pulled back yesterday giving back some of Monday's big gain, but the chart still looks fairly bullish. That could certainly change if support fails on hawkish news. The 1925 area has some support and the 1875 area could be the line in the sand for the bulls.
The EFA (I-fund) has been churning sideways and, depending how you draw your trend lines, there are some bull flag formations that catch my eye. Unless this is a big lure to get investors leaning on the wrong side, this chart suggests an eventual breakout to the upside, although another test of the bottom of the flag first is not out of the question.
BND (bonds, F-fund) continues to form a bull flag so the suggestion is that a breakout to the upside is coming, which would take bond yields lower, and as we saw up above, the 10-year Treasury Yield fell back below its 200-day EMA support yesterday.
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.
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.
