The post-Fed hangover hit Wall Street on Thursday as shell shocked bulls retreated and questioned their hopes of the lows for the year being in already. They still may be, but some ominous chart patterns and more rate hikes may dampen those hopes. The Dow lost 147-points on Thursday and the broader indices were slightly mixed with small caps holding up better than large caps, and the Transportation Index closing with a nice gain. Yields and the dollar were up and that keeps the headwind for stocks in their face.
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Remember that Wall Street article on a possible Fed pivot that sent stocks higher last week? We were skeptical and wrote this in the October 24th commentary:
"The timing of the article was suspect since the Fed is now in their blackout period before the November 1st and 2nd FOMC meeting, so we won't hear any other comments from them between now and then. Of course, the paranoid trader in me is concerned that they threw that dovish article out there so that some larger financial intuitions can sell some positions at higher prices between now and the November 2nd meeting, and have more cash on hand for another leg down in the stock market after that FOMC meeting."
What do you think? I have been doing this a long time and have become jaded and distrusting of much of what we see reported. Were we all duped?
The 10-year Treasury Yield moved up modestly to 4.12% yesterday as it approaches the recent highs, but the 2-year yield is now at 4.73% so the inverted yield curve continues to widen and it is now actually at its widest point this year at -0.61.
The dollar was up big so that bull flag is flirting with breaking out as it closed just above the resistance.
And here's that 2/10 yield curve:
Despite the strength in the dollar and the Fed trying to weaken the economy, the price of oil is holding up well and has actually created a bullish base, called a cup and handle formation, and they tend to break to the upside so it wouldn't be a surprise to see it pushing into the low to mid-90's in the coming days. The 200-day EMA (currently @ 91.34) may provide some resistance, but the chart looks like it want to go higher.
The Transportation Index bucked the negative trend yesterday with a gain of 0.81%, but this chart looks troublesome as well, unless it can crawl back above the bear flag.
It has been crazy week for stocks, and I don't know about you, but I am burned out. Unfortunately it doesn't get any easier as we will get the October jobs report this morning (Friday.) Estimates are looking for a gain of 242,000 jobs and an unemployment rate of 3.5%.
Then next week we have the election results on Wednesday, and the October CPI report on Thursday.
The bulls may be hanging their hats on the positive seasonality that picks up about this time of year during a mid-term election year, but we happen to be in a rare bear market and perhaps we shouldn't count on that working so well this year?
The S&P 500 (C-fund) found support in an area where two support lines are crossing. That is a positive, but the bear flag formation is not. Perhaps we can see some backing and filling of Thursday's open gap, which was nearly filled after the opening bell yesterday, but not quite. If the 3700 area fails, the bear flag downside target is a little too ugly to talk about yet and there's always the possibility that a double bottom could hold at 3500 if it gets down there again. The PMO momentum indicator is starting to rollover again.
The DWCPF (small caps / S-fund) held up a little better, which is potentially a good sign for the future if it can continue. However, there is a bear flag here as well, which could break down and that theory would be blown. The 1550 area looks important.
The EFA (I-fund) also held up a little better than the US large caps, and that's a bit of a surprise considering the strength in the dollar on Thursday. And, no surprise, there's bear flag here as well.
BND (bonds / F-fund) fell sharply as investors price in more rate hikes and higher yields. The old resistance line, which was broken, is trying to hold as support, but that line is falling quickly so it's not much support. At some point bonds will become attractive again, but when that happens it will also be a good time for stocks again.
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 so much for reading. Have a great weekend!
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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Remember that Wall Street article on a possible Fed pivot that sent stocks higher last week? We were skeptical and wrote this in the October 24th commentary:
"The timing of the article was suspect since the Fed is now in their blackout period before the November 1st and 2nd FOMC meeting, so we won't hear any other comments from them between now and then. Of course, the paranoid trader in me is concerned that they threw that dovish article out there so that some larger financial intuitions can sell some positions at higher prices between now and the November 2nd meeting, and have more cash on hand for another leg down in the stock market after that FOMC meeting."
What do you think? I have been doing this a long time and have become jaded and distrusting of much of what we see reported. Were we all duped?
The 10-year Treasury Yield moved up modestly to 4.12% yesterday as it approaches the recent highs, but the 2-year yield is now at 4.73% so the inverted yield curve continues to widen and it is now actually at its widest point this year at -0.61.
The dollar was up big so that bull flag is flirting with breaking out as it closed just above the resistance.
And here's that 2/10 yield curve:
Despite the strength in the dollar and the Fed trying to weaken the economy, the price of oil is holding up well and has actually created a bullish base, called a cup and handle formation, and they tend to break to the upside so it wouldn't be a surprise to see it pushing into the low to mid-90's in the coming days. The 200-day EMA (currently @ 91.34) may provide some resistance, but the chart looks like it want to go higher.
The Transportation Index bucked the negative trend yesterday with a gain of 0.81%, but this chart looks troublesome as well, unless it can crawl back above the bear flag.
It has been crazy week for stocks, and I don't know about you, but I am burned out. Unfortunately it doesn't get any easier as we will get the October jobs report this morning (Friday.) Estimates are looking for a gain of 242,000 jobs and an unemployment rate of 3.5%.
Then next week we have the election results on Wednesday, and the October CPI report on Thursday.
The bulls may be hanging their hats on the positive seasonality that picks up about this time of year during a mid-term election year, but we happen to be in a rare bear market and perhaps we shouldn't count on that working so well this year?
The S&P 500 (C-fund) found support in an area where two support lines are crossing. That is a positive, but the bear flag formation is not. Perhaps we can see some backing and filling of Thursday's open gap, which was nearly filled after the opening bell yesterday, but not quite. If the 3700 area fails, the bear flag downside target is a little too ugly to talk about yet and there's always the possibility that a double bottom could hold at 3500 if it gets down there again. The PMO momentum indicator is starting to rollover again.
The DWCPF (small caps / S-fund) held up a little better, which is potentially a good sign for the future if it can continue. However, there is a bear flag here as well, which could break down and that theory would be blown. The 1550 area looks important.
The EFA (I-fund) also held up a little better than the US large caps, and that's a bit of a surprise considering the strength in the dollar on Thursday. And, no surprise, there's bear flag here as well.
BND (bonds / F-fund) fell sharply as investors price in more rate hikes and higher yields. The old resistance line, which was broken, is trying to hold as support, but that line is falling quickly so it's not much support. At some point bonds will become attractive again, but when that happens it will also be a good time for stocks again.
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 so much for reading. Have a great weekend!
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.
