Stocks were mixed on Friday after an early and midday sell off following Thursday's additional inflationary economic data was released. The Dow closed with an impressive triple digit gain despite spending much of the morning in the red. The broader market indices were mostly lower with small caps lagging along with the Nasdaq, while the I-fund managed a small gain. Bonds were up as yields eventually fell off a morning double top high.
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Stocks made another afternoon comeback on Friday, although there was a little technical damage done to the S&P 500 chart, but many other index charts are clinging to the support of their 20-day EMAs. I would say that there is still a debate about whether the rally off the October lows has become a new bull market, or just the late stages of a bear market rally. In a bull market the 20-day EMA will often hold - but not always. The 50-day EMA and the 200-day are generally more important but holding above the 20-day, while that is above the 50 and 200, is a sign that the bulls are very much in charge.
The S&P 500 posted a positive reversal day, which is general bullish for the short-term, but on Friday it did close down 11-points and that landed it 1-point below the 20-day EMA. Not the end of the world, but a minor warning sign. On the bullish side, the 50-day EMA crossed back above the 200-day EMA, something it did, but failed to hold, during one of the 2022 rallies. In the short-term it often crosses just as the index gets overbought, but as of now the 20-day is above the 50-day, and the 50-day is above the 200-day. It could change, but for now, that's good stuff.
The other index charts are actually in slightly better shape when it comes to the 20-day EMA and some crossovers. The DWCPF, which is our S-fund, has tested and held at that 20-day average for six straight days now. That doesn't mean it will continue to hold, but so far, so good. Below that is the Russell 2000 small cap index (IWM) chart, the Nasdaq, and the Dow Transportation Index. As you can see...
... they are all above their 20-day moving averages. No guarantees, but so far almost of the important indices are cooperating.
Not that there is a blueprint, but as a comparison, here the S-fund during and after the COVID crash. The 20-day EMA moved back above the 50-day EMA in May of 2020 and stayed there all year. For the most part the 20-day EMA held on pullbacks, but when it didn't, the 50-day EMA was there to try to catch it. That all changed in 2022, but so far in 2023 we are seeing some changes back to the bullish side.
The 10-year Yield ramped higher at the open on Friday, hit the December high and flipped back over to close lower on the day.
That is one of the caveats for the bullish intermediate-term outlook. If we start to see the 10-year yield move back over those prior highs and into the 4% area, the stock market could start to grumble again, which is what the recent inflationary data was doing to it. But the question will be whether it is getting above 4% because inflation is too high, or because the economy is getting hot. We certainly know that the labor market has barely flinched during the Fed's interest rate hikes, and remains as strong as ever, so the economy can't be all that bad.
The S&P 500 (C-fund) was one of the indices that closed below its 20-day EMA on Friday, as we talked about above. That could open the door for a test of some more vigorous support near 4000, but the positive reversal day on Friday may be a building block for the dip buyers, which would be typical follow through action to a reversal day. If instead we see Friday's lows get taken out, the 4000 area comes into play. It's all in a big bull flag, so it's to get too bearish -- unless we see sub 4000.
DWCPF (S-fund) was discussed above and it's trying to hold above its 20-day EMA and above what looked like a possible bull flag breakout.
The EFA (I-fund) is in a bullish looking flag after moving basically sideways since mid-January. The recent ability to hold on just slightly off the highs despite the big push higher in the dollar this month, is a good sign. The 20-day EMA has been trying to hold and this looks like may be ready to make a move higher, although it will probably need the help of the US market to do so.
BND (Bonds / F-fund) broke down last week. The positive reversal day may be showing some hope, and if it can climb back above that parallel channel support line, it will be a good reminder of why I like to see 3 to 5 closes below support before confirming a breakdown. However, if it fails here we may still get that breakdown confirmation.
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. 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.
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Stocks made another afternoon comeback on Friday, although there was a little technical damage done to the S&P 500 chart, but many other index charts are clinging to the support of their 20-day EMAs. I would say that there is still a debate about whether the rally off the October lows has become a new bull market, or just the late stages of a bear market rally. In a bull market the 20-day EMA will often hold - but not always. The 50-day EMA and the 200-day are generally more important but holding above the 20-day, while that is above the 50 and 200, is a sign that the bulls are very much in charge.
The S&P 500 posted a positive reversal day, which is general bullish for the short-term, but on Friday it did close down 11-points and that landed it 1-point below the 20-day EMA. Not the end of the world, but a minor warning sign. On the bullish side, the 50-day EMA crossed back above the 200-day EMA, something it did, but failed to hold, during one of the 2022 rallies. In the short-term it often crosses just as the index gets overbought, but as of now the 20-day is above the 50-day, and the 50-day is above the 200-day. It could change, but for now, that's good stuff.
The other index charts are actually in slightly better shape when it comes to the 20-day EMA and some crossovers. The DWCPF, which is our S-fund, has tested and held at that 20-day average for six straight days now. That doesn't mean it will continue to hold, but so far, so good. Below that is the Russell 2000 small cap index (IWM) chart, the Nasdaq, and the Dow Transportation Index. As you can see...
... they are all above their 20-day moving averages. No guarantees, but so far almost of the important indices are cooperating.
Not that there is a blueprint, but as a comparison, here the S-fund during and after the COVID crash. The 20-day EMA moved back above the 50-day EMA in May of 2020 and stayed there all year. For the most part the 20-day EMA held on pullbacks, but when it didn't, the 50-day EMA was there to try to catch it. That all changed in 2022, but so far in 2023 we are seeing some changes back to the bullish side.
The 10-year Yield ramped higher at the open on Friday, hit the December high and flipped back over to close lower on the day.
That is one of the caveats for the bullish intermediate-term outlook. If we start to see the 10-year yield move back over those prior highs and into the 4% area, the stock market could start to grumble again, which is what the recent inflationary data was doing to it. But the question will be whether it is getting above 4% because inflation is too high, or because the economy is getting hot. We certainly know that the labor market has barely flinched during the Fed's interest rate hikes, and remains as strong as ever, so the economy can't be all that bad.
The S&P 500 (C-fund) was one of the indices that closed below its 20-day EMA on Friday, as we talked about above. That could open the door for a test of some more vigorous support near 4000, but the positive reversal day on Friday may be a building block for the dip buyers, which would be typical follow through action to a reversal day. If instead we see Friday's lows get taken out, the 4000 area comes into play. It's all in a big bull flag, so it's to get too bearish -- unless we see sub 4000.
DWCPF (S-fund) was discussed above and it's trying to hold above its 20-day EMA and above what looked like a possible bull flag breakout.
The EFA (I-fund) is in a bullish looking flag after moving basically sideways since mid-January. The recent ability to hold on just slightly off the highs despite the big push higher in the dollar this month, is a good sign. The 20-day EMA has been trying to hold and this looks like may be ready to make a move higher, although it will probably need the help of the US market to do so.
BND (Bonds / F-fund) broke down last week. The positive reversal day may be showing some hope, and if it can climb back above that parallel channel support line, it will be a good reminder of why I like to see 3 to 5 closes below support before confirming a breakdown. However, if it fails here we may still get that breakdown confirmation.
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. 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.
