Stocks declined before and after the Fed meeting minutes were released on Wednesday. The Dow dropped 383-points and losses of near 1% were seen across many indices. Small caps were holding up very well early and were actually up nearly 1% at their highs, but they succumbed to the selling pressure from the rest of the market in the final hour of trading and closed with moderate losses. Bonds were flat slightly, yields were up, and the dollar was flat after some wide swings in both directions.
[TABLE="align: center"]
[TR]
[TD="align: center"] Daily TSP Funds Return
[TABLE="align: center"]
[TR]
[TD="align: right"][/TD]
[/TR]
[/TABLE]
[/TD]
[TD]
[/TD]
[TD="width: 338, align: center"]
[/TD]
[/TR]
[/TABLE]
We saw a lot of selling in the big three for a change. It's the first 2-day losing streak in August for the Dow and S&P 500, and we haven't had seen much worse than 2 - 3 day pullbacks in the S&P 500 for months, so is this yet another buying opportunity?
The last several minutes of the day felt a little panicky so we should see some attempt from the dip buyers today. The question will be if the bears are ready to pounce on rallies yet.
As you'll see in the index charts down below, we have plenty of reasons to be worried, but that has been the case for weeks, and months, and so far the market has not cracked. Even a healthy market needs to wash out some of it excesses and these kind of pullbacks help, but a 10% correction every once in a while can really stabilize a bull market.
That sounds counter-productive but making new highs every day is just not sustainable and thins out support, and when you see some companies rising with the tide that probably would otherwise sink, then it's usually time for a cleansing.
The biggest names in our market like Apple and Microsoft remain very strong and since they are Dow, S&P 500, and Nasdaq components, you can see how the indices remain buoyant. But when we see stocks like GameStop, AMC, or other meme stocks tripling or more in a few months, or see a growing number of S&P 500 stocks falling below their 50-day averages while the index makes new highs daily, we know there are some excesses out there. Then life goes on. That is unless the underlying problem is bigger than most of us can see, and in that case corrections and bear markets evolve, but being just off new highs, it's a little too early to think about that. It can be in the back of your mind, but I know what it's like to believe the sky is falling when the market results are trying to tell us a different story.
It's like flipping a coin and picking tails, and it comes up heads 5 times in a row. When it finally comes up tails, I don't really have the right to brag or explain the analysis. It was going to come up tails eventually. Now if I can tell you when it's going to come up tails 5 times in a row, and it does, then you might be impressed.
The difference with a coin toss and the market is that each flip of the coin has 50/50 chance. We have charts, indicators, and some have instincts or feel for the market, to help us make those choices and the better we are at it, the less of a 50/50 proposition it becomes.
The S&P 500 (C-fund) lost more than 1% on Wednesday and it closed below the 20-day EMA for the first time since July 19. That one lasted one day. The one before that on June 18 also lasted one day. We've seen these type of dips come right back, and a few come down to test the 50-day EMA. I'm not sure what the catalyst would be to turn things back up so quickly, but underestimating this stock market has not been a winning strategy this year. The PMO indicator is pointing lower and is now back below its moving average.
The DWCPF (S-fund) is sitting just below the 100-day average, and right on what could be the neckline of a head and shoulders pattern. It's kind of an unorthodox H&S pattern since it already broke in July, but it snapped right back. If this is going to break down again, the initial downside target would be near 2100 again.
The EFA (EAFE Index / I-fund) was down, but held up better than the U.S. indices and that may be because of the late selling in then U.S. The overseas markets didn't have a chance to react yet. I see decent support near 79.50, but if that breaks there's not a whole lot of support below that.
The Dow Transportation Index dipped and is back below the 50-day EMA and the resistance line coming off the May / June highs. It had been shaping up nicely after moving above some resistance, but that blue channel could be some kind of a bear flag.
I wanted to follow up on the price of copper which we talked about in Wednesday's commentary. Yesterday it broke down from what looks like a head and shoulders pattern, and it's now testing the June low. This isn't super important but it could be one of those canary in a coalmine indicators that the economy may be slowing.
The BND (bonds / F-fund) was fairly flat yesterday despite what happened in the stock market. The top of that channel is still in play as resistance for now, so we shouldn't be surprised if the 50-day EMA gets tested, or if the bottom of the channel gets tagged again. I wouldn't get too interested in bonds unless it does pullback deeper into the channel first - or if it moves above that resistance line, then it will have more room to run.
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.
[TABLE="align: center"]
[TR]
[TD="align: center"] Daily TSP Funds Return
[TR]
[TD="align: right"][/TD]
[/TR]
[/TABLE]
[/TD]
[TD]
[/TD]
[TD="width: 338, align: center"]
[/TR]
[/TABLE]
We saw a lot of selling in the big three for a change. It's the first 2-day losing streak in August for the Dow and S&P 500, and we haven't had seen much worse than 2 - 3 day pullbacks in the S&P 500 for months, so is this yet another buying opportunity?
The last several minutes of the day felt a little panicky so we should see some attempt from the dip buyers today. The question will be if the bears are ready to pounce on rallies yet.
As you'll see in the index charts down below, we have plenty of reasons to be worried, but that has been the case for weeks, and months, and so far the market has not cracked. Even a healthy market needs to wash out some of it excesses and these kind of pullbacks help, but a 10% correction every once in a while can really stabilize a bull market.
That sounds counter-productive but making new highs every day is just not sustainable and thins out support, and when you see some companies rising with the tide that probably would otherwise sink, then it's usually time for a cleansing.
The biggest names in our market like Apple and Microsoft remain very strong and since they are Dow, S&P 500, and Nasdaq components, you can see how the indices remain buoyant. But when we see stocks like GameStop, AMC, or other meme stocks tripling or more in a few months, or see a growing number of S&P 500 stocks falling below their 50-day averages while the index makes new highs daily, we know there are some excesses out there. Then life goes on. That is unless the underlying problem is bigger than most of us can see, and in that case corrections and bear markets evolve, but being just off new highs, it's a little too early to think about that. It can be in the back of your mind, but I know what it's like to believe the sky is falling when the market results are trying to tell us a different story.
It's like flipping a coin and picking tails, and it comes up heads 5 times in a row. When it finally comes up tails, I don't really have the right to brag or explain the analysis. It was going to come up tails eventually. Now if I can tell you when it's going to come up tails 5 times in a row, and it does, then you might be impressed.
The difference with a coin toss and the market is that each flip of the coin has 50/50 chance. We have charts, indicators, and some have instincts or feel for the market, to help us make those choices and the better we are at it, the less of a 50/50 proposition it becomes.
Anyway, I won't show the usual charts that I post up here today - yields, dollar, advance / decline numbers - I think we all saw what happened yesterday just by looking at the intraday charts above.
Basically the Fed released their minutes, the market got very volatile, and eventually fell sharply when it sounded more likely that they are going to start tapering their bond buying in the not so distant future. How investors proceed from here is the question - whether to do the usual and buy this dip, or step aside and see how it is going to play out before doing any more buying? With those Fed minutes behind us, the market will look toward the Jackson Hole Economic Symposium next week.
Remember, we're deep into August and August and September tend to be a period of pausing for stocks. Not always, but historical averages suggest this is so.
Basically the Fed released their minutes, the market got very volatile, and eventually fell sharply when it sounded more likely that they are going to start tapering their bond buying in the not so distant future. How investors proceed from here is the question - whether to do the usual and buy this dip, or step aside and see how it is going to play out before doing any more buying? With those Fed minutes behind us, the market will look toward the Jackson Hole Economic Symposium next week.
Remember, we're deep into August and August and September tend to be a period of pausing for stocks. Not always, but historical averages suggest this is so.
The S&P 500 (C-fund) lost more than 1% on Wednesday and it closed below the 20-day EMA for the first time since July 19. That one lasted one day. The one before that on June 18 also lasted one day. We've seen these type of dips come right back, and a few come down to test the 50-day EMA. I'm not sure what the catalyst would be to turn things back up so quickly, but underestimating this stock market has not been a winning strategy this year. The PMO indicator is pointing lower and is now back below its moving average.
The DWCPF (S-fund) is sitting just below the 100-day average, and right on what could be the neckline of a head and shoulders pattern. It's kind of an unorthodox H&S pattern since it already broke in July, but it snapped right back. If this is going to break down again, the initial downside target would be near 2100 again.
The EFA (EAFE Index / I-fund) was down, but held up better than the U.S. indices and that may be because of the late selling in then U.S. The overseas markets didn't have a chance to react yet. I see decent support near 79.50, but if that breaks there's not a whole lot of support below that.
The Dow Transportation Index dipped and is back below the 50-day EMA and the resistance line coming off the May / June highs. It had been shaping up nicely after moving above some resistance, but that blue channel could be some kind of a bear flag.
I wanted to follow up on the price of copper which we talked about in Wednesday's commentary. Yesterday it broke down from what looks like a head and shoulders pattern, and it's now testing the June low. This isn't super important but it could be one of those canary in a coalmine indicators that the economy may be slowing.
The BND (bonds / F-fund) was fairly flat yesterday despite what happened in the stock market. The top of that channel is still in play as resistance for now, so we shouldn't be surprised if the 50-day EMA gets tested, or if the bottom of the channel gets tagged again. I wouldn't get too interested in bonds unless it does pullback deeper into the channel first - or if it moves above that resistance line, then it will have more room to run.
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.
