A late rally on Friday helped push stocks off their lows, but it was another day that the bears were in control as Wednesday's Fed driven rally is now a thing of the past. The Dow ended the day down 98-points, a far cry from the 4 digits moves that we've seen recently, but the small caps and the Nasdaq didn't get the memo and both sold off rather sharply. The S-fund is now down 21% for the year so for those who are sticklers for the official definition of a bear market, you have one now. Bonds were down sharply again as yields made yet another new high.
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The S&P 500 (C-fund) is flirting with a major breakdown if it can't hold above some of the previous lows. It looks like a head and shoulders pattern is completely formed, and they do tend to break down, so there is that risk. Market crashes do occur more often from oversold conditions than off of market peaks, so there is that concern as well, but fear is quite high as investors run for cover, and that may be what saves the market from a breakdown as we talked about on Friday with the cycle of emotions chart. We've had days that appeared to be capitulation, but the reversals just haven't been holding.
The weekly chart shows the S&P desperately trying to hold above some long term support. It fell below that support last week but managed to close just above it on Friday. If we do see a breakdown, that 200-week average near 3600 could come into play, and that's a long way down. So while we are due for some short-term relief, the weekly chart suggests some possible longer term issues.
DWCPF (S-fund / small caps) closed well off the lows and got a little bounce off that wide blue parallel trading channel but it a bad trading day down to new lows and giving the small caps fund a 21% loss for the year. A playable bounce could reach 1800 or even 1875, but this trend is down and selling rallies seems to be the correct strategy. We just need to see some rallies.
The EFA (I-fund) tested the Mach lows after the bear flag broke down last week.
BND (bonds / F-fund) moved down to new lows yet again, and the trend remains as bearish as they get. At some point this will change, but until we see some kind of break above the trading channel, it seems prudent to avoid this fund.
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.
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The jobs report was solid but the market didn't exactly act as if it was impressed. As a matter of fact the strong employment data is one of the reasons that the Fed feels raising interest rates is justified.
The up/down issues and volume breadth was fairly negative on Friday after that huge 95% negative downside volume on Thursday. As I talked about on Friday, that kind of a mismatch can indicate some kind of washout selling low, but obviously Friday did not act as if that was the case.
Whenever the selling seems out of line with the situation you have to wonder if something else is brewing under the surface that the average person is unaware of. We all know about interest rates going up, inflation getting hot, the economy seeing some hiccups, and did I mention a war and possible nuclear options? But there could be other issues that the market has not fully accounted for, and you, me, and mom and pop haven't fully adjusted for, whether financial or geopolitical.
During the financial crisis we saw the financial companies Lehman Brothers and Bear Sterns, each of which were around for over a century, suddenly go belly up. We knew there were problems but I think seeing them fail was the straw that broke the camel's back during the financial crisis.
What's coming around the corner next? Can we see a major failure in something such as ARK Innovations? That popular fund is down 52% this year, and 58% over the last 12 months. This was the darling fund when the FAANG stocks were shining, but oh how things have changed. If Cathie Wood throws in the towel on this because investors start withdrawing their money, that could set off a firestorm of selling.
That's total speculation and I am not calling for that to happen, but if there are any grumblings on Wall Street about something like that, stocks would likely tank a lot more before we get the news.
We're at the point where things are getting so bad that it could be getting good, and for Cathie Wood's sake, maybe the Nasdaq is showing signs of that. This chart shows that only 13.8% of all stocks on the Nasdaq Composite are priced above their 200-day moving average. That's extreme and we've only seen it worse three times in the last 20 years with each coming fairly close to a market low, and only the COVID crash and the financial crises saw lower readings.
The dollar and the yield on the 10-year Treasury were both up again and this continues to put pressure on the stock market. On Wednesday, after the Fed ruled out 0.75% rate hikes, it looked like both of those charts could be trying to peak and rollover, but not to be. Both are at or very near recent highs.
I'll talk about this more as we approach the date, but the TSP is making big changes over the next few weeks and there will be a significant shutdown in the second half of May that will impact transactions, including our IFTs at some point. You can read more here: TSP is shutting down IFTs on May 26 until the first week in June
The up/down issues and volume breadth was fairly negative on Friday after that huge 95% negative downside volume on Thursday. As I talked about on Friday, that kind of a mismatch can indicate some kind of washout selling low, but obviously Friday did not act as if that was the case.
Whenever the selling seems out of line with the situation you have to wonder if something else is brewing under the surface that the average person is unaware of. We all know about interest rates going up, inflation getting hot, the economy seeing some hiccups, and did I mention a war and possible nuclear options? But there could be other issues that the market has not fully accounted for, and you, me, and mom and pop haven't fully adjusted for, whether financial or geopolitical.
During the financial crisis we saw the financial companies Lehman Brothers and Bear Sterns, each of which were around for over a century, suddenly go belly up. We knew there were problems but I think seeing them fail was the straw that broke the camel's back during the financial crisis.
What's coming around the corner next? Can we see a major failure in something such as ARK Innovations? That popular fund is down 52% this year, and 58% over the last 12 months. This was the darling fund when the FAANG stocks were shining, but oh how things have changed. If Cathie Wood throws in the towel on this because investors start withdrawing their money, that could set off a firestorm of selling.
That's total speculation and I am not calling for that to happen, but if there are any grumblings on Wall Street about something like that, stocks would likely tank a lot more before we get the news.
We're at the point where things are getting so bad that it could be getting good, and for Cathie Wood's sake, maybe the Nasdaq is showing signs of that. This chart shows that only 13.8% of all stocks on the Nasdaq Composite are priced above their 200-day moving average. That's extreme and we've only seen it worse three times in the last 20 years with each coming fairly close to a market low, and only the COVID crash and the financial crises saw lower readings.
The dollar and the yield on the 10-year Treasury were both up again and this continues to put pressure on the stock market. On Wednesday, after the Fed ruled out 0.75% rate hikes, it looked like both of those charts could be trying to peak and rollover, but not to be. Both are at or very near recent highs.
I'll talk about this more as we approach the date, but the TSP is making big changes over the next few weeks and there will be a significant shutdown in the second half of May that will impact transactions, including our IFTs at some point. You can read more here: TSP is shutting down IFTs on May 26 until the first week in June
The S&P 500 (C-fund) is flirting with a major breakdown if it can't hold above some of the previous lows. It looks like a head and shoulders pattern is completely formed, and they do tend to break down, so there is that risk. Market crashes do occur more often from oversold conditions than off of market peaks, so there is that concern as well, but fear is quite high as investors run for cover, and that may be what saves the market from a breakdown as we talked about on Friday with the cycle of emotions chart. We've had days that appeared to be capitulation, but the reversals just haven't been holding.
The weekly chart shows the S&P desperately trying to hold above some long term support. It fell below that support last week but managed to close just above it on Friday. If we do see a breakdown, that 200-week average near 3600 could come into play, and that's a long way down. So while we are due for some short-term relief, the weekly chart suggests some possible longer term issues.
DWCPF (S-fund / small caps) closed well off the lows and got a little bounce off that wide blue parallel trading channel but it a bad trading day down to new lows and giving the small caps fund a 21% loss for the year. A playable bounce could reach 1800 or even 1875, but this trend is down and selling rallies seems to be the correct strategy. We just need to see some rallies.
The EFA (I-fund) tested the Mach lows after the bear flag broke down last week.
BND (bonds / F-fund) moved down to new lows yet again, and the trend remains as bearish as they get. At some point this will change, but until we see some kind of break above the trading channel, it seems prudent to avoid this fund.
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.
