If you enjoy "get me out at any price" mornings, followed by "fear of missing out" buying in the afternoon, Wednesday was the day for you. The Dow saw a 900+ point positive reversal and losses of 1% to 2% turned into 1% to 2% gains in many indices. Bond yields fell early but bounced back as stocks rallied. The positive outside reversal day is a bullish development for stocks.
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Once again it was a tough one for TSP'ers who have to make a decision by 12 noon ET. My guess is if you tried buy low during the morning sell off, you weren't very happy about getting filled at the highs of the day at the close. On the other hand if you were panic selling, you caught a break selling at the highs, but you may not have wanted to sell a positive reversal day.
The CPI came in at +0.2% for August, in line with estimates, and the year over year increase was 2.5%, a tick less than expected. The Core CPI increased 0.3% for the month, slightly higher than the estimate, and Y-O-Y increase held at 3.2%, in line with the forecast.
This data helped solidify a possible 0.25% interest rate cut from the Fed next week as the odds of a 0.50% cut fell from 34% to to just 15% yesterday.
We'll get the PPI report this morning before the opening bell, as well as the weekly jobless claims. I suppose these could change things as well.
The reversal yesterday was something to behold as the Dow fell below 40,000 in early trading, then rallied up to 40,904 before closing at 40,862.
The SPY is the ETF that tracks the S&P 500. I use it here to illustrate the trading volume because reversals that come on high volume tend to stick. Yesterday's 75 million shares traded doubled Tuesday's 36 million. And positive outside reversal days (POR) have the opposite effect of negative outside reversal days (NOR.) It doesn't have to mean stocks go up every day from here, but they tend to indicate a change in character has begun. The NORs have worked well this year in signaling a negative turning point for the market. let's see what the POR does.
Some follow up on the financial sector that hit a wall this month: Yesterday I said, "If it [XLF] falls below 43.50 then we could have a problem that bleeds into the rest of the market." And that was basically the low of the day yesterday so the dip buyers were ready at that support level. It was not a positive outside reversal day like we saw in the S&P 500, but that positive kangaroo tail reversal is one with some staying power.
I don't want to get too excited because this positive reversal will run into the Fed meeting next week, which also has the potential to change the market's character, but until then the bulls have an advantage in the short-term, just based on the charts.
The S&P 500 (C-fund) posted the positive outside reversal day (on high volume per the SPY) and that keeps the bullish inverted head and shoulder pattern alive. Barring any major events between now and the Fed meeting next Wednesday, this should make a run toward the recent highs. Perhaps the Fed will cause another pullback off the top, but the inverted H&S suggests the Fed could ignite a breakout, although we do have some modest fundamental issues in the economy so it will be a good trick to get to new highs again in the worst month of the year for stocks under these conditions.
The DWCPF (S-fund) rallied after a major sell off in the morning. It retested the bottom of several of those old, already filled, gaps from earlier in the summer. It's not shown on this chart but the 100-day EMA is currently 2039, so it fell below that that early, but closed back above it. Another potentially good set up with or without the already positive outside reversal day.
The EFA (I-fund) played along although the gains weren't as big since all of the gains in the US market came in the afternoon, well after the overseas international markets had already closed. The gap near 79 remains open but the index managed to close back above all of the major moving averages. Yesterday's highs come at some potential resistance so any positive close today would be a technical boost.
BND (F-fund) was down slightly but remains in the uptrend. A bit of a negative reversal yesterday, but the chart looks fine. I have been expecting a possible move to test the lower end of the red channel at some point, which would be normal, but not really necessary.
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.html
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 use additional methods and strategies to determine fund positions.
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Once again it was a tough one for TSP'ers who have to make a decision by 12 noon ET. My guess is if you tried buy low during the morning sell off, you weren't very happy about getting filled at the highs of the day at the close. On the other hand if you were panic selling, you caught a break selling at the highs, but you may not have wanted to sell a positive reversal day.
The CPI came in at +0.2% for August, in line with estimates, and the year over year increase was 2.5%, a tick less than expected. The Core CPI increased 0.3% for the month, slightly higher than the estimate, and Y-O-Y increase held at 3.2%, in line with the forecast.
This data helped solidify a possible 0.25% interest rate cut from the Fed next week as the odds of a 0.50% cut fell from 34% to to just 15% yesterday.
We'll get the PPI report this morning before the opening bell, as well as the weekly jobless claims. I suppose these could change things as well.
The reversal yesterday was something to behold as the Dow fell below 40,000 in early trading, then rallied up to 40,904 before closing at 40,862.
The SPY is the ETF that tracks the S&P 500. I use it here to illustrate the trading volume because reversals that come on high volume tend to stick. Yesterday's 75 million shares traded doubled Tuesday's 36 million. And positive outside reversal days (POR) have the opposite effect of negative outside reversal days (NOR.) It doesn't have to mean stocks go up every day from here, but they tend to indicate a change in character has begun. The NORs have worked well this year in signaling a negative turning point for the market. let's see what the POR does.
Some follow up on the financial sector that hit a wall this month: Yesterday I said, "If it [XLF] falls below 43.50 then we could have a problem that bleeds into the rest of the market." And that was basically the low of the day yesterday so the dip buyers were ready at that support level. It was not a positive outside reversal day like we saw in the S&P 500, but that positive kangaroo tail reversal is one with some staying power.
I don't want to get too excited because this positive reversal will run into the Fed meeting next week, which also has the potential to change the market's character, but until then the bulls have an advantage in the short-term, just based on the charts.
The S&P 500 (C-fund) posted the positive outside reversal day (on high volume per the SPY) and that keeps the bullish inverted head and shoulder pattern alive. Barring any major events between now and the Fed meeting next Wednesday, this should make a run toward the recent highs. Perhaps the Fed will cause another pullback off the top, but the inverted H&S suggests the Fed could ignite a breakout, although we do have some modest fundamental issues in the economy so it will be a good trick to get to new highs again in the worst month of the year for stocks under these conditions.
The DWCPF (S-fund) rallied after a major sell off in the morning. It retested the bottom of several of those old, already filled, gaps from earlier in the summer. It's not shown on this chart but the 100-day EMA is currently 2039, so it fell below that that early, but closed back above it. Another potentially good set up with or without the already positive outside reversal day.
The EFA (I-fund) played along although the gains weren't as big since all of the gains in the US market came in the afternoon, well after the overseas international markets had already closed. The gap near 79 remains open but the index managed to close back above all of the major moving averages. Yesterday's highs come at some potential resistance so any positive close today would be a technical boost.
BND (F-fund) was down slightly but remains in the uptrend. A bit of a negative reversal yesterday, but the chart looks fine. I have been expecting a possible move to test the lower end of the red channel at some point, which would be normal, but not really necessary.
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.html
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 use additional methods and strategies to determine fund positions.
