Stocks rallied on Thursday on more solid earnings from the tech sector. The Dow gained a modest 0.34% but once again the broader indices did much better. Yields and the dollar were down helping push bond prices higher as well. It's been quite a week and it ends today, but not until we deal with this morning's jobs report.
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After a rocky start, one of the 7 "nasty", worst weeks of the year, has been doing just fine. It's been choppy with one more trading day left that happens to follow an important jobs report, which could be a market mover.
Last month's jobs report is going to be a tough act to follow as it doubled estimates, which is curious when we keep seeing headline like this one from CNBC yesterday... "Layoffs rise to the highest for any February since 2009".
As we often say, rallies seem to go on longer than we think is possible. These shake outs this year have only lasted 1 to 3 days, but some of those declines were severe enough to scare investors out, only to leave them behind again. I'm inclined to do some selling but I know if this rally keeps going, it would be very tough to get back. Would you buy another one day shake out, or do you wait 2 or 3 days, in which case you would have missed this week's bounce back?
So this is a tough market to time, and the buy and holders probably have the advantage. That is until it ends and they go down with the ship, while market timers at least have a chance to miss a major decline.
I'll get to some on that in a minute, but let's first look at the 10-year Treasury Yield which closed below its 200-day EMA for a second straight day, however it did fill, and hold, the bottom of an old open gap that didn't quite get fully filled in early February. So, with the jobs report coming today - something that can move yields dramatically one way or the other - is this a pullback low, or has this been the end of the 2024 rise in yields?
The dollar pulled back yesterday as well. It also filled a small open gap near 27.85, and it is testing a prior peak from December. The recent weakness has not only helped the price of stocks, but also the price of commodities like gold, oil. and bitcoin, but in our neighborhood it has been the I-fund that has been benefiting most recently.
The EFA (I-fund) made another new high yesterday as the open gaps continue to pile up in this current, very solid, rising ascending channel.
But back to the rallies, how long they can last, and whether you should or shouldn't buy a brief dip. This is the S&P 500 chart from 2023. We had a big rally to start the year, but it flipped on a dime in early February and buying that dip probably hurt the dip buyers as it fell from about 4200 down to 3850 in 5 weeks. Then, from the March low until late July, the dip buying worked like a charm. However, buying a brief dip in August last year got you in a lot of trouble as stocks declined for the next three months. Nobody rang a bell for us at those peaks.
If we go back to 2022, it is true that we were in a bear market, but those rallies were a force. When they ended, they ended with a thud. Again, no bells were ringing for us when the rallies were over. We either had to speculate, or bail quickly, which probably meant missing a good part of those solid gains of the bear market rally.
Here we are in 2024 and the S&P 500 is still rallying off the October 2023 lows. Our job as market timers is to figure out either when that bell at the top is supposed to ring, when the dips can be bought if you have cash, or when to just hold on for the ride.
It all looks easy in hindsight, but of course it is not. With stocks near all time highs it's not hard to say that buying and holding is the best game in town. But, depending how close you are to retiring or needing your savings, can you afford a 10%, 20%, or 30% or more loss in the short-term that could take years to recover?
I'm not getting completely bearish. I'm just saying you may want to have a game plan for what to do at these lofty levels when this rally eventually comes to an end. I don't like taking big losses but I admit I have missed out on a lot of gains over the years by selling strong rallies too early. Holding on is an OK option, if you don't mind the risk, and the possibility of taking a big loss along the way.
The February Jobs Report estimates are looking for a gain of about 200,000 jobs and an unemployment rate of 3.7%.
The S&P 500 (C-fund) chart looks very interesting. It starts in the bottom left and ends in the bottom right. That's what a bull market looks like. However, the PMO momentum indicator is lower than it was in December, and again lower than it was in February, yet it has been making new highs the whole way. This is a slight warning sign but I guess they are not going to make it easy to try to pick a top. The trend is our friend and it is up, and it has held at the 20-day EMA the whole time. However, the large open gap below 5000 reminds us what a meaningful pullback could do. That's the 200-day EMA way down in the bottom right hand corner just below 4600, but it is rising. Is that a target for some kind of spring, summer, or fall correction?
After a failed breakout last week, the DWCPF (S-fund) recaptured the breakout resistance line and is making new highs for the year. It is still off the all time highs by quite a bit and the chart has been basing a lot better than the S&P 500 chart, so support looks more solid. The problem with small caps is that tend to move in sympathy with the large caps and it would be tough for them to keep rallying if we get a meaningful pullback in the overbought S&P 500.
BND (Bonds / F-fund) was up again yesterday and that's now 3 new closes above the blue flag pattern that we have been watching for weeks. There's a large open gap up by 73.20 and that is a realistic short-term upside target, unless today's jobs report flips this chart on its head.
Thanks so much for reading! Have a great weekend!
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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[TD="width: 338, align: center"] Daily TSP Funds Return
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After a rocky start, one of the 7 "nasty", worst weeks of the year, has been doing just fine. It's been choppy with one more trading day left that happens to follow an important jobs report, which could be a market mover.
Last month's jobs report is going to be a tough act to follow as it doubled estimates, which is curious when we keep seeing headline like this one from CNBC yesterday... "Layoffs rise to the highest for any February since 2009".
As we often say, rallies seem to go on longer than we think is possible. These shake outs this year have only lasted 1 to 3 days, but some of those declines were severe enough to scare investors out, only to leave them behind again. I'm inclined to do some selling but I know if this rally keeps going, it would be very tough to get back. Would you buy another one day shake out, or do you wait 2 or 3 days, in which case you would have missed this week's bounce back?
So this is a tough market to time, and the buy and holders probably have the advantage. That is until it ends and they go down with the ship, while market timers at least have a chance to miss a major decline.
I'll get to some on that in a minute, but let's first look at the 10-year Treasury Yield which closed below its 200-day EMA for a second straight day, however it did fill, and hold, the bottom of an old open gap that didn't quite get fully filled in early February. So, with the jobs report coming today - something that can move yields dramatically one way or the other - is this a pullback low, or has this been the end of the 2024 rise in yields?
The dollar pulled back yesterday as well. It also filled a small open gap near 27.85, and it is testing a prior peak from December. The recent weakness has not only helped the price of stocks, but also the price of commodities like gold, oil. and bitcoin, but in our neighborhood it has been the I-fund that has been benefiting most recently.
The EFA (I-fund) made another new high yesterday as the open gaps continue to pile up in this current, very solid, rising ascending channel.
But back to the rallies, how long they can last, and whether you should or shouldn't buy a brief dip. This is the S&P 500 chart from 2023. We had a big rally to start the year, but it flipped on a dime in early February and buying that dip probably hurt the dip buyers as it fell from about 4200 down to 3850 in 5 weeks. Then, from the March low until late July, the dip buying worked like a charm. However, buying a brief dip in August last year got you in a lot of trouble as stocks declined for the next three months. Nobody rang a bell for us at those peaks.
If we go back to 2022, it is true that we were in a bear market, but those rallies were a force. When they ended, they ended with a thud. Again, no bells were ringing for us when the rallies were over. We either had to speculate, or bail quickly, which probably meant missing a good part of those solid gains of the bear market rally.
Here we are in 2024 and the S&P 500 is still rallying off the October 2023 lows. Our job as market timers is to figure out either when that bell at the top is supposed to ring, when the dips can be bought if you have cash, or when to just hold on for the ride.
It all looks easy in hindsight, but of course it is not. With stocks near all time highs it's not hard to say that buying and holding is the best game in town. But, depending how close you are to retiring or needing your savings, can you afford a 10%, 20%, or 30% or more loss in the short-term that could take years to recover?
I'm not getting completely bearish. I'm just saying you may want to have a game plan for what to do at these lofty levels when this rally eventually comes to an end. I don't like taking big losses but I admit I have missed out on a lot of gains over the years by selling strong rallies too early. Holding on is an OK option, if you don't mind the risk, and the possibility of taking a big loss along the way.
The February Jobs Report estimates are looking for a gain of about 200,000 jobs and an unemployment rate of 3.7%.
The S&P 500 (C-fund) chart looks very interesting. It starts in the bottom left and ends in the bottom right. That's what a bull market looks like. However, the PMO momentum indicator is lower than it was in December, and again lower than it was in February, yet it has been making new highs the whole way. This is a slight warning sign but I guess they are not going to make it easy to try to pick a top. The trend is our friend and it is up, and it has held at the 20-day EMA the whole time. However, the large open gap below 5000 reminds us what a meaningful pullback could do. That's the 200-day EMA way down in the bottom right hand corner just below 4600, but it is rising. Is that a target for some kind of spring, summer, or fall correction?
After a failed breakout last week, the DWCPF (S-fund) recaptured the breakout resistance line and is making new highs for the year. It is still off the all time highs by quite a bit and the chart has been basing a lot better than the S&P 500 chart, so support looks more solid. The problem with small caps is that tend to move in sympathy with the large caps and it would be tough for them to keep rallying if we get a meaningful pullback in the overbought S&P 500.
BND (Bonds / F-fund) was up again yesterday and that's now 3 new closes above the blue flag pattern that we have been watching for weeks. There's a large open gap up by 73.20 and that is a realistic short-term upside target, unless today's jobs report flips this chart on its head.
Thanks so much for reading! Have a great weekend!
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.
