Stocks staged a late day comeback on Friday to close with big gains and at the highs of the day. It had 'reversal day' written all over it as trading volume spiked. Volatility remains elevated and the bears may not be done yet, however we have just seen some very bearish sentiment readings last and that could actually spell relief for a while. The gains on Friday still left the C and S-funds in the red for February, while bonds and the F-fund led the TSP funds last month with a 2.20% gain.
I'm not sure if that is what is happening here on the S&P 500 chart, but it is certainly a possibility, especially if that gap fill was the target.
The high trading volume is a good indication that institutional investors were involved in the buying reversal.
The problem with this recent decline, or perhaps it is the relative strength of the market, is that we haven't seen much of a pullback considering the level of bearishness out there. Sentiment is often used as a contrarian indicator - when it is at an extreme reading.
This next chart shows the extremely bearish sentiment from the the AAII members, and several other indicators concur such as the CNN Fear & Greed Index. It took the 2022 bear market many months of declining before we saw the AAII Investor Sentiment Survey reach a level of bearishness like we are seeing now (a 0.32 bull to bear ratio - 61% bearish vs. 19% bullish), and the S&P 500 is barely off the all time highs.
I'm not completely sure about how to interpret this, and of course we're never completely confident about anything in a market. This reading is ringing a bell that a relief rally is due (and may have started on Friday), whether it's for a short term bounce, or we're already hitting the bottom for the current pullback.
Combine that bullish indication with the Fed liquidity being increased, and we actually have a pretty good set up for the stock market this month.
The futures have not opened yet as I write this on Sunday afternoon, but we got another hint of investor sentiment possibly turning. Take a look at the chart of bitcoin, which of course trades 24 / 7 / 365, and we can see what happened over the weekend compared to Friday's close.
The market has a set up for at least a short-term rebound. If the bulls can't make it happen, then something is very wrong, but the odds favor additional relief. What we do with that rally (sell or hold) isn't as clear but hopefully the clues will unfold this week. The seasonality calendar starts to improve the deeper we get into March.
The February TSP Talk AutoTracker winners have been posted in the forum. Congratulations to felixthecat for the 2.88% gain in the month, beating all the funds and all participants. Get in on the action - it's free!
DWCPF (S-fund) fell below the 200-day EMA in midday trading on Friday, but the ferocious reversal and late afternoon rally pushed it back above that key average and support, and its next test may be the resistance at the broken 100-day average (orange), which had been support earlier this year.
ACWX (the I-fund tracking index) fell early on Friday, broke below the rising support line, then below the support of the 55 area that we have been watching, before rebounding strongly, however it still closed below the broke support line, which may now act as resistance. The dollar has had a big three day rally and whether that continues or not may determine if that support or resistance is going to break first. A weak dollar favors the I-fund.
BND (F-fund) had another big day as yields fell further on Friday. The high of the day filled an open gap from back in October, so it may be hitting a short-term headwind. If it doesn't stall, that 73.25 area will be the support area to watch, although there is an open gap near 73 that could be a draw.
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
Questions, comments, or issues with today's commentary? We can discuss it in the Forum.
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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 may use additional methods and strategies to determine fund positions.
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The charts have been teasing us lately as we had some very good formations fail the bulls, and make it tough to hold on. If you've been a long time reader of these commentary, this chart will look familiar. It's an inverted head and shoulders pattern, which is generally very bullish, but once in a while, instead of breaking out after the right shoulder (RS), it has this need to test the head again before coming back around.
I'm not sure if that is what is happening here on the S&P 500 chart, but it is certainly a possibility, especially if that gap fill was the target.
The high trading volume is a good indication that institutional investors were involved in the buying reversal.
The problem with this recent decline, or perhaps it is the relative strength of the market, is that we haven't seen much of a pullback considering the level of bearishness out there. Sentiment is often used as a contrarian indicator - when it is at an extreme reading.
This next chart shows the extremely bearish sentiment from the the AAII members, and several other indicators concur such as the CNN Fear & Greed Index. It took the 2022 bear market many months of declining before we saw the AAII Investor Sentiment Survey reach a level of bearishness like we are seeing now (a 0.32 bull to bear ratio - 61% bearish vs. 19% bullish), and the S&P 500 is barely off the all time highs.
I'm not completely sure about how to interpret this, and of course we're never completely confident about anything in a market. This reading is ringing a bell that a relief rally is due (and may have started on Friday), whether it's for a short term bounce, or we're already hitting the bottom for the current pullback.
Combine that bullish indication with the Fed liquidity being increased, and we actually have a pretty good set up for the stock market this month.
The futures have not opened yet as I write this on Sunday afternoon, but we got another hint of investor sentiment possibly turning. Take a look at the chart of bitcoin, which of course trades 24 / 7 / 365, and we can see what happened over the weekend compared to Friday's close.
The market has a set up for at least a short-term rebound. If the bulls can't make it happen, then something is very wrong, but the odds favor additional relief. What we do with that rally (sell or hold) isn't as clear but hopefully the clues will unfold this week. The seasonality calendar starts to improve the deeper we get into March.
The February TSP Talk AutoTracker winners have been posted in the forum. Congratulations to felixthecat for the 2.88% gain in the month, beating all the funds and all participants. Get in on the action - it's free!
DWCPF (S-fund) fell below the 200-day EMA in midday trading on Friday, but the ferocious reversal and late afternoon rally pushed it back above that key average and support, and its next test may be the resistance at the broken 100-day average (orange), which had been support earlier this year.
ACWX (the I-fund tracking index) fell early on Friday, broke below the rising support line, then below the support of the 55 area that we have been watching, before rebounding strongly, however it still closed below the broke support line, which may now act as resistance. The dollar has had a big three day rally and whether that continues or not may determine if that support or resistance is going to break first. A weak dollar favors the I-fund.
BND (F-fund) had another big day as yields fell further on Friday. The high of the day filled an open gap from back in October, so it may be hitting a short-term headwind. If it doesn't stall, that 73.25 area will be the support area to watch, although there is an open gap near 73 that could be a draw.
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
Questions, comments, or issues with today's commentary? We can discuss it in the Forum.
Daily Market Commentary Archives
For more info our other premium services, please go here... www.tsptalk.com/premiums.php
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 may use additional methods and strategies to determine fund positions.
