We came into Wednesday after Microsoft reported strong earnings and Google (Alphabet) disappointed, and the question was, which will dictate Wednesday's action. The answer is: Google. But it had a lot of help from another push higher in yields as the 10-year Treasury flirted with 5% again. The dollar was also up and many indices were at or testing their lows.
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The Dow lost "just" 105-points because Microsoft is a Dow component and it gained 3% on the day. Google is not a Dow stock. however it is an S&P 500 and Nasdaq component, and they took the full brunt of the near 10% loss, after it had been a very comfortable, widely held stock for some time.
The huge gap down in GOOG was actually doing some clean up action on an old gap as the chart never did fill in the large gap opened when they reported last quarter. Perhaps that 124 area, or the 200-day EMA near 122, are the targets?
The 10-year Treasury Yield spiked up and that was probably the icing on the cake for the squeamish bulls who were still nervously holding. Maybe it goes higher, maybe it's just testing the highs for a double top - everyone wants to know, but no one is going to ring a bell to let us know either way. That, and the break out in the dollar yesterday, were pretty good reasons to be concerned and it may be getting us closer to a final shake out in stocks.
Yesterday RevShark mentioned that institutional investors prefer to buy stocks when they declining rather than chase, so they have an incentive to make things look as bad as possible before they start buying the shares from those squeamish bulls, as they give up. We haven't really had a high volume "pukey" sell off yet that suggests capitulation, but instead it's been more of the frog sitting in water that is slowly heating up and by the time the water boils, it's too late to jump out.
The chart of the S&P 500 was testing the lows From Monday and basically held for the final two hours of trading so perhaps there were some institutions doing some buying. The weekly chart is now at an interesting pivot point, and perhaps a make or break level.
It is trading below the red rising support line, and yesterday it closed 2.5 points below the 50-week moving average, and 20 cents below the 100-week average. You can see that it could be now or never for support, and again it could be why it was holding in this 4187 area for a couple of hours yesterday.
Going back further, these moving average obviously don't hold as support or resistance every time, but often enough to keep an open mind about possible in this area.
We got earnings from META yesterday after the close, one of the Magnificent Seven, and they were trading higher, then slightly lower (-1%) in after hours trading, so it may not be much of a catalyst today.
There were actually several good earnings reports after the bell yesterday, including IBM and ServiceNow, which were both up nicely after hours, but these are not the market movers of the Magnificent Seven.
The small caps index, DWCPF (S-fund) did something interesting yesterday and I hadn't noticed this until it happened. That is, the open gap from May 5th did get filled on Tuesday, but I sometimes talk about "stealth gaps" where the gap isn't quite as visible on the chart. In this case, the area between the closing price on May 4th, and the lows on May 5th, represent a gap between those two days, and that level was tested yesterday. Does that make it a low? Possibly, but there are no rules that it has to be - but maybe a modest tendency.
We will get the 3rd quarter GDP numbers this morning, and tomorrow we'll get the PCE Prices and Personal Reports.
We'll see how the reaction to META goes and then we get hit with Amazon's earnings report after the bell today, so the volatility should continue.
EFA (I-fund) actually outperformed the US indices despite the move up in the dollar. That may be telling us that the overseas markets weren't as concerned about, or impacted by, the loss in Google like the US indices that are heavily weighted with Google. Still, it was a loss, it is in a downtrend, and it is trading near the lows.
BND (bonds / F-fund) was down sharply and it lost all of the gains from the big 2-day rally. The rallies keep failing and the bond investors are pushing yields up by continuing to sell bonds. The good news is, yields will likely come down since the rapid rise in yields should thwart the economy, which is also the bad news.
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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The Dow lost "just" 105-points because Microsoft is a Dow component and it gained 3% on the day. Google is not a Dow stock. however it is an S&P 500 and Nasdaq component, and they took the full brunt of the near 10% loss, after it had been a very comfortable, widely held stock for some time.
The huge gap down in GOOG was actually doing some clean up action on an old gap as the chart never did fill in the large gap opened when they reported last quarter. Perhaps that 124 area, or the 200-day EMA near 122, are the targets?
The 10-year Treasury Yield spiked up and that was probably the icing on the cake for the squeamish bulls who were still nervously holding. Maybe it goes higher, maybe it's just testing the highs for a double top - everyone wants to know, but no one is going to ring a bell to let us know either way. That, and the break out in the dollar yesterday, were pretty good reasons to be concerned and it may be getting us closer to a final shake out in stocks.
Yesterday RevShark mentioned that institutional investors prefer to buy stocks when they declining rather than chase, so they have an incentive to make things look as bad as possible before they start buying the shares from those squeamish bulls, as they give up. We haven't really had a high volume "pukey" sell off yet that suggests capitulation, but instead it's been more of the frog sitting in water that is slowly heating up and by the time the water boils, it's too late to jump out.
The chart of the S&P 500 was testing the lows From Monday and basically held for the final two hours of trading so perhaps there were some institutions doing some buying. The weekly chart is now at an interesting pivot point, and perhaps a make or break level.
It is trading below the red rising support line, and yesterday it closed 2.5 points below the 50-week moving average, and 20 cents below the 100-week average. You can see that it could be now or never for support, and again it could be why it was holding in this 4187 area for a couple of hours yesterday.
Going back further, these moving average obviously don't hold as support or resistance every time, but often enough to keep an open mind about possible in this area.
We got earnings from META yesterday after the close, one of the Magnificent Seven, and they were trading higher, then slightly lower (-1%) in after hours trading, so it may not be much of a catalyst today.
There were actually several good earnings reports after the bell yesterday, including IBM and ServiceNow, which were both up nicely after hours, but these are not the market movers of the Magnificent Seven.
The small caps index, DWCPF (S-fund) did something interesting yesterday and I hadn't noticed this until it happened. That is, the open gap from May 5th did get filled on Tuesday, but I sometimes talk about "stealth gaps" where the gap isn't quite as visible on the chart. In this case, the area between the closing price on May 4th, and the lows on May 5th, represent a gap between those two days, and that level was tested yesterday. Does that make it a low? Possibly, but there are no rules that it has to be - but maybe a modest tendency.
We will get the 3rd quarter GDP numbers this morning, and tomorrow we'll get the PCE Prices and Personal Reports.
We'll see how the reaction to META goes and then we get hit with Amazon's earnings report after the bell today, so the volatility should continue.
EFA (I-fund) actually outperformed the US indices despite the move up in the dollar. That may be telling us that the overseas markets weren't as concerned about, or impacted by, the loss in Google like the US indices that are heavily weighted with Google. Still, it was a loss, it is in a downtrend, and it is trading near the lows.
BND (bonds / F-fund) was down sharply and it lost all of the gains from the big 2-day rally. The rallies keep failing and the bond investors are pushing yields up by continuing to sell bonds. The good news is, yields will likely come down since the rapid rise in yields should thwart the economy, which is also the bad news.
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.
