Stocks were mixed but mostly higher on Friday following a Goldilocks jobs report -- more jobs were created than expected, but the unemployment rate unexpectedly jumped to 3.8% and that might keep the Fed at bay for a while. The Dow gained 116-points, the Nasdaq was flat, and the S&P 500 gained back what it lost on Thursday. The I-fund lagged and small caps led with the threat of another rate hike perhaps waning after the jobs report.
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However, almost contradictory, bond yields and the dollar went up sharply so I understand why the I-fund lagged, but why yields moved up so much despite the weaker jobs data is a little confusing.
187,000 jobs were created in August which was above the estimate of 170,000. However, the unemployment rate was 3.8%. While the job growth beat expectations, previous months’ counts were revised considerably lower. The July estimate moved down by 30,000 to 157,000 and June was revised lower by 80,000 to 105,000.
So once again these jobs report are suspect and almost meaningless as we gained 17,000 more jobs than expected in August, but they reduced the two prior reports by 110,000. It's as if these reports are just a way for professionals to get some volatility in the market to do some buying or selling at the expense of the more emotionally driven small investor or trader.
So here's some of the oddities of last week's pre-holiday action. The higher than expected unemployment rate and lowered revisions eased interest rate tensions yet the yield on the 10-year Treasury spiked higher pushing bond prices (and the F-fund) sharply lower. It was the day before a 3-day holiday weekend which can often skew normal action, and perhaps that is what happened as the yield moved right up to some heavy resistance. Trading volume may still be light today but action like Friday probably won't translate into a quiet day in yields. It will more likely move back down sharply, or gap up above that resistance.
BND (Bonds / F-fund) was down sharply and backed off from the 50-day EMA.
The Fed Balance sheet continues to creep lower as it was reduced by another $18 billion last week
Source: https://www.federalreserve.gov/monetarypolicy/bst_recenttrends.htm
Reducing the balance sheet, QT, or quantitative tightening, whatever you call it, can have the effect of strengthening the dollar, and we have witnessed that recently as the UUP made a new closing high for the year on Friday. That, and the higher yields, should be weighing on stock prices, but the holiday reversal action in stocks, bonds, or the dollar could be be impacting what is really happening, and that could correct this week - the week after the holiday.
Here's the weekly chart of the S&P 500 and this actually look pretty good - depending on how you look at it. Even though we've had some rough patches, the larger trend off the October lows is still up, and it found support at that green 20-week EMA recently, but the intermediate-term trend and support coming off the March lows (red dashed) may have broken down and now it is testing that old support as possible resistance.
The price of oil is becoming a factor after a near $20 a barrel move off the early summer lows. It closed at its highest level since last fall, and the 50-day moving average is crossing back above the 200-day average indicating that this move off the lows may be a new trend to the upside. The averages were crossing to the down side last September and the price of oil trended lower for almost a year until this recent move higher.
This will obviously mean higher prices at the gas pumps for us, and that takes money out of consumers' pockets. The glass half empty out look tells us that this could hurt the economy. On the glass half full side it could also keep inflation in check as Americans won't have as much spending money and that could translate into interest rates more likely to staying where they are or going lower.
There's a lot going on and this fall could be very interesting for the stock market as both the bulls / bears have compelling arguments, and there are some very smart people on both of those sides pushing valid points.
Administrative Note: It's time for the 2023 NFL Survivor Pool again. It's a very easy contest to do - just pick one winning team every week and you move on to the next week. As always, it's free. The deadline to register and make your week one pick is the start of the first game this coming Sunday. More information
The S&P 500 (C-fund) broke above some key resistance last week, but the timing of those breakouts leaves us with some concerns that the action was a pre-holiday reversal from the major trend, which had turned negative a month earlier. We can only speculate and it may not take long this week to let us know if that was the case. Today's action could be a light volume day as traders slowly come back from their late summer vacations and it can take a few days after Labor Day to see trading volume pick up and give us a better idea where the indices want to go. For now, 4500 looks to be a key level for the bulls to hold and there is an open gap up near 4570. The recent PMO indicator positive crossover could be an indication of being overbought in the short-term, but could be a better sign for the intermediate-term if support levels do hold.
DWCPF (S-fund) had a big day on Friday as the drop in unemployment helped the interest rate picture, and small caps are more interest rate sensitive than large caps. There is a possible head and shoulders pattern forming after last week's pre-holiday rally. Other than the possible H&S pattern, many of the right things are happening here so it's just a matter of holding on above that 1725 area, which does still give it a lot of short-term breathing room in either direction.
The EFA (I-fund) was down on Friday after that big rally in the dollar. Open gaps, support and resistance lines, and moving averages will all be pushing and pulling at this chart, but ultimately it may be about whether the dollar continues going higher or not.
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.
Like what you're seeing on TSP Talk? Why not Tell a Friend about us? We'd really appreciate it, and they may too.
Thanks!
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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However, almost contradictory, bond yields and the dollar went up sharply so I understand why the I-fund lagged, but why yields moved up so much despite the weaker jobs data is a little confusing.
187,000 jobs were created in August which was above the estimate of 170,000. However, the unemployment rate was 3.8%. While the job growth beat expectations, previous months’ counts were revised considerably lower. The July estimate moved down by 30,000 to 157,000 and June was revised lower by 80,000 to 105,000.
So once again these jobs report are suspect and almost meaningless as we gained 17,000 more jobs than expected in August, but they reduced the two prior reports by 110,000. It's as if these reports are just a way for professionals to get some volatility in the market to do some buying or selling at the expense of the more emotionally driven small investor or trader.
So here's some of the oddities of last week's pre-holiday action. The higher than expected unemployment rate and lowered revisions eased interest rate tensions yet the yield on the 10-year Treasury spiked higher pushing bond prices (and the F-fund) sharply lower. It was the day before a 3-day holiday weekend which can often skew normal action, and perhaps that is what happened as the yield moved right up to some heavy resistance. Trading volume may still be light today but action like Friday probably won't translate into a quiet day in yields. It will more likely move back down sharply, or gap up above that resistance.
BND (Bonds / F-fund) was down sharply and backed off from the 50-day EMA.
The Fed Balance sheet continues to creep lower as it was reduced by another $18 billion last week
Source: https://www.federalreserve.gov/monetarypolicy/bst_recenttrends.htm
Reducing the balance sheet, QT, or quantitative tightening, whatever you call it, can have the effect of strengthening the dollar, and we have witnessed that recently as the UUP made a new closing high for the year on Friday. That, and the higher yields, should be weighing on stock prices, but the holiday reversal action in stocks, bonds, or the dollar could be be impacting what is really happening, and that could correct this week - the week after the holiday.
Here's the weekly chart of the S&P 500 and this actually look pretty good - depending on how you look at it. Even though we've had some rough patches, the larger trend off the October lows is still up, and it found support at that green 20-week EMA recently, but the intermediate-term trend and support coming off the March lows (red dashed) may have broken down and now it is testing that old support as possible resistance.
The price of oil is becoming a factor after a near $20 a barrel move off the early summer lows. It closed at its highest level since last fall, and the 50-day moving average is crossing back above the 200-day average indicating that this move off the lows may be a new trend to the upside. The averages were crossing to the down side last September and the price of oil trended lower for almost a year until this recent move higher.
This will obviously mean higher prices at the gas pumps for us, and that takes money out of consumers' pockets. The glass half empty out look tells us that this could hurt the economy. On the glass half full side it could also keep inflation in check as Americans won't have as much spending money and that could translate into interest rates more likely to staying where they are or going lower.
There's a lot going on and this fall could be very interesting for the stock market as both the bulls / bears have compelling arguments, and there are some very smart people on both of those sides pushing valid points.
Administrative Note: It's time for the 2023 NFL Survivor Pool again. It's a very easy contest to do - just pick one winning team every week and you move on to the next week. As always, it's free. The deadline to register and make your week one pick is the start of the first game this coming Sunday. More information
The S&P 500 (C-fund) broke above some key resistance last week, but the timing of those breakouts leaves us with some concerns that the action was a pre-holiday reversal from the major trend, which had turned negative a month earlier. We can only speculate and it may not take long this week to let us know if that was the case. Today's action could be a light volume day as traders slowly come back from their late summer vacations and it can take a few days after Labor Day to see trading volume pick up and give us a better idea where the indices want to go. For now, 4500 looks to be a key level for the bulls to hold and there is an open gap up near 4570. The recent PMO indicator positive crossover could be an indication of being overbought in the short-term, but could be a better sign for the intermediate-term if support levels do hold.
DWCPF (S-fund) had a big day on Friday as the drop in unemployment helped the interest rate picture, and small caps are more interest rate sensitive than large caps. There is a possible head and shoulders pattern forming after last week's pre-holiday rally. Other than the possible H&S pattern, many of the right things are happening here so it's just a matter of holding on above that 1725 area, which does still give it a lot of short-term breathing room in either direction.
The EFA (I-fund) was down on Friday after that big rally in the dollar. Open gaps, support and resistance lines, and moving averages will all be pushing and pulling at this chart, but ultimately it may be about whether the dollar continues going higher or not.
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.
Like what you're seeing on TSP Talk? Why not Tell a Friend about us? We'd really appreciate it, and they may too.
Thanks!
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.
