Stocks rolled over on Thursday, after the emotional Fed driven rally on Wednesday. A dismal final two hours of trading took the indices to the lows of the day after they were tried to battle back from a weak opening. The Dow ended the day down a moderate 153-points, but once again the high tech Nasdaq stocks and small caps took the brunt of the selling. The timing suggests it could be some end of quarter rebalancing.
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It seems like every time that I try to take couple of days off, the market starts to get very cranky and it forces me to give a little more than a quick update. Maybe I should add that as one of my technical indicators.
The Fed already told us that they are not raising interest rates, so any concern that rising bond yields are going to cause them to hike is probably unnecessary, but rising yields do put pressure on growth stocks as we've seen, and this may just be a revaluing of some of those high valuation stocks.
Is it more than that? Because stocks have run up so much for the last seal months, we could be seeing pension funds having to do another one of those end of quarter rebalancing acts. Bonds have gotten cheap while stocks have been rallying, and that could force money managers to reallocate at the end of the quarter since they are likely now too heavy in stocks and too light in bonds, compared to their fund's prospectus. We saw that in June and September of last year.
We know stimulus checks are going out, the economy is growing but not going crazy, and the unemployment picture gets a little better each month, so the macro view looks OK. Right now, the Fed has the market's backs and other than a couple of red flags, such as the High Yield Funds, it may just be more consolidation from the massive November to February rally, and some of that rebalancing to get the stocks / bonds ratio back in line.
March Madness links: More Info. Yahoo! Tourney Pick'em.
The S&P 500 (C-fund) failed to hold the new highs, and we've seen that before so it's not unusual. The question is whether it going to be a benign pullback, like we saw in December and maybe January, or something more severe like we saw in February and into March? The fact that we did make a new higher high this week suggests the uptrend is still alive, but that's not true in all of the indices.
The DWCPF (small caps / S-fund) is falling back, and like I just said, this one never did make a new high on this last leg up. But it does seem to be creating a clear inverted head and shoulders pattern, and since they are generally bullish, I'd expected the 50-day EMA to hold on any further pullback to complete the right shoulder.
I feel the same way about the Nasdaq. There's an inverted head and shoulders on that chart as well and whether or not the right shoulder holds or not will be the cue as to whether this is a pause before the next attempt at news highs, or if the head and shoulders breaks down and we could be looking at topping action.
Yields were up again and we know that sends bond prices down. BND (bonds / F-fund) did get beaten up yesterday, and I know I've said this several times over the last week or two, but this downside action here looks to be getting overdone in the short-term.
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
Thanks 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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It seems like every time that I try to take couple of days off, the market starts to get very cranky and it forces me to give a little more than a quick update. Maybe I should add that as one of my technical indicators.
The Fed already told us that they are not raising interest rates, so any concern that rising bond yields are going to cause them to hike is probably unnecessary, but rising yields do put pressure on growth stocks as we've seen, and this may just be a revaluing of some of those high valuation stocks.
Is it more than that? Because stocks have run up so much for the last seal months, we could be seeing pension funds having to do another one of those end of quarter rebalancing acts. Bonds have gotten cheap while stocks have been rallying, and that could force money managers to reallocate at the end of the quarter since they are likely now too heavy in stocks and too light in bonds, compared to their fund's prospectus. We saw that in June and September of last year.
We know stimulus checks are going out, the economy is growing but not going crazy, and the unemployment picture gets a little better each month, so the macro view looks OK. Right now, the Fed has the market's backs and other than a couple of red flags, such as the High Yield Funds, it may just be more consolidation from the massive November to February rally, and some of that rebalancing to get the stocks / bonds ratio back in line.
March Madness links: More Info. Yahoo! Tourney Pick'em.
The S&P 500 (C-fund) failed to hold the new highs, and we've seen that before so it's not unusual. The question is whether it going to be a benign pullback, like we saw in December and maybe January, or something more severe like we saw in February and into March? The fact that we did make a new higher high this week suggests the uptrend is still alive, but that's not true in all of the indices.
The DWCPF (small caps / S-fund) is falling back, and like I just said, this one never did make a new high on this last leg up. But it does seem to be creating a clear inverted head and shoulders pattern, and since they are generally bullish, I'd expected the 50-day EMA to hold on any further pullback to complete the right shoulder.
I feel the same way about the Nasdaq. There's an inverted head and shoulders on that chart as well and whether or not the right shoulder holds or not will be the cue as to whether this is a pause before the next attempt at news highs, or if the head and shoulders breaks down and we could be looking at topping action.
Yields were up again and we know that sends bond prices down. BND (bonds / F-fund) did get beaten up yesterday, and I know I've said this several times over the last week or two, but this downside action here looks to be getting overdone in the short-term.
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
Thanks 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.
