Stocks rallied on Friday with another peculiar spike into the close. We saw similar action when stocks were falling in March where the last half hour or so, exaggerated the day's action, and that happened on up and down days. It feels unnatural, but what it's telling us is debatable. The Dow finished with a gain of 705-points and percentage-wise it was the Dow and the small caps that did best - so the largest and the smallest, while the Nasdaq lagged but still had an impressive 1.4% gain.
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The late move could be late money trying to get their trade in before the weekend to go less noticed, or it could be some big money trying to influence investors and possibly the weekend talking points. It seemed like moves like that were reversed quickly in March, but clearly we have a different market right now than we had in March.
The rebound off the lows has been more than most of the "test the lows" market timers expected, and that's no shock. The market seems to like to go further than would make people comfortable - to the point where we see one side or the other capitulates. We had a couple of days like that last week where it felt like a capitulation from those expecting a test - they appear to be giving up on that theory, and as typical of the market, it could mean a shift is coming.
On the other hand, this is how a "V" bottom might feel - if it weren't for the bear flags on many of the charts, I might be in the "V" bottom camp by now, but chart patterns tend to overrule much of my analysis when they don't say the same thing.
One interesting development on Friday was a sharp spike up in energy stock prices as shown by the XLE Index below. The reason it was interesting is because the price of oil fell almost 9% on the day. Very odd. The XLE was one of the first charts to break its rising channel and bearish looking flag. Friday's rally snapped it back toward the bottom of that flag, and filled an open gap, so where it goes from here will be interesting -- back into the flag, or does that flag now act as resistance?
Again, that flag pattern is a microcosm of what we see in many of the stock index charts, as you'll see below, and the breakdown I have been expecting from those flags, so if the XLE improves after its breakdown, perhaps stocks won't be punished as the bear flags might indicate. So I'll be interested to see how this charts develops early this week.
The S&P 500 (C-fund) has run up for nearly a month now, since the March 23 low. So the rebound has now lasted about the same amount of time as the decline from the highs down to the lows. In that time it has retraced 56% of the losses. I put a blue circle around the next areas that the S&P 500 could be met with some resistance. The 200-day EMA is at 2959, an open gap will get filled at 2900, and the top of what I think could be a bear flag, or a rising wedge, is near 2880.
The 50-day EMA was breached for a second time on Friday, something we saw occasionally in 2008 before the bear showed its teeth again. It wasn't until April of 2009 that we saw the S&P sustain itself above the 50-day EMA, and the low in march 2009 ended up being the bottom of the bear market.
But before we got into April 2009, we saw tremendous bear market rallies that lasted several weeks to a few months before they failed and the lows were tested again. The current rally off the lows has lasted for 4 weeks.
The DWCPF / S-fund had a huge day gaining 4% after a couple of days of lagging the S&P 500. But this is clearly a bear flag nearing the 50-day EMA. It's an awful setup, but can the U.S. get out of this economic devastation before anyone goes back to work, which is still just being considered and will probably only be done in phases. Does that warrant stock prices racing back to their old all-time highs within several weeks?
I wanted to take a look at the real small cap index, the Russell 2000, to see if it is telling the same story, and sure enough, it's the same. Bear flags tend to break down so if this one does, there's a lot of damage that can be done. If it doesn't, the stock market may have a lot of us technical analysis geeks leaning the wrong way.
The EFA / I-fund had briefly broken below its support line before Friday's emotional rally based on possible remedies to the coronavirus. There are two large open gaps below the current price, and one on the upside, with another above the 200-day EMA which we'll deal with when this is back over the 200- EMA.
The BND was down slightly but it is still flirting with the old highs, and specifically the old closing high near 87.80. The chart of the 10-year Treasury yield below that shows it bouncing off that support line - the line that was only breached once, for a day, during the March panic sell-off for stocks and bonds. That isn't the most bullish looking chart however, with the lower high so we could see that 0.56 area tested again in the coming days / weeks.
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. 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 late move could be late money trying to get their trade in before the weekend to go less noticed, or it could be some big money trying to influence investors and possibly the weekend talking points. It seemed like moves like that were reversed quickly in March, but clearly we have a different market right now than we had in March.
The rebound off the lows has been more than most of the "test the lows" market timers expected, and that's no shock. The market seems to like to go further than would make people comfortable - to the point where we see one side or the other capitulates. We had a couple of days like that last week where it felt like a capitulation from those expecting a test - they appear to be giving up on that theory, and as typical of the market, it could mean a shift is coming.
On the other hand, this is how a "V" bottom might feel - if it weren't for the bear flags on many of the charts, I might be in the "V" bottom camp by now, but chart patterns tend to overrule much of my analysis when they don't say the same thing.
One interesting development on Friday was a sharp spike up in energy stock prices as shown by the XLE Index below. The reason it was interesting is because the price of oil fell almost 9% on the day. Very odd. The XLE was one of the first charts to break its rising channel and bearish looking flag. Friday's rally snapped it back toward the bottom of that flag, and filled an open gap, so where it goes from here will be interesting -- back into the flag, or does that flag now act as resistance?
Again, that flag pattern is a microcosm of what we see in many of the stock index charts, as you'll see below, and the breakdown I have been expecting from those flags, so if the XLE improves after its breakdown, perhaps stocks won't be punished as the bear flags might indicate. So I'll be interested to see how this charts develops early this week.
The S&P 500 (C-fund) has run up for nearly a month now, since the March 23 low. So the rebound has now lasted about the same amount of time as the decline from the highs down to the lows. In that time it has retraced 56% of the losses. I put a blue circle around the next areas that the S&P 500 could be met with some resistance. The 200-day EMA is at 2959, an open gap will get filled at 2900, and the top of what I think could be a bear flag, or a rising wedge, is near 2880.
The 50-day EMA was breached for a second time on Friday, something we saw occasionally in 2008 before the bear showed its teeth again. It wasn't until April of 2009 that we saw the S&P sustain itself above the 50-day EMA, and the low in march 2009 ended up being the bottom of the bear market.
But before we got into April 2009, we saw tremendous bear market rallies that lasted several weeks to a few months before they failed and the lows were tested again. The current rally off the lows has lasted for 4 weeks.
The DWCPF / S-fund had a huge day gaining 4% after a couple of days of lagging the S&P 500. But this is clearly a bear flag nearing the 50-day EMA. It's an awful setup, but can the U.S. get out of this economic devastation before anyone goes back to work, which is still just being considered and will probably only be done in phases. Does that warrant stock prices racing back to their old all-time highs within several weeks?
I wanted to take a look at the real small cap index, the Russell 2000, to see if it is telling the same story, and sure enough, it's the same. Bear flags tend to break down so if this one does, there's a lot of damage that can be done. If it doesn't, the stock market may have a lot of us technical analysis geeks leaning the wrong way.
The EFA / I-fund had briefly broken below its support line before Friday's emotional rally based on possible remedies to the coronavirus. There are two large open gaps below the current price, and one on the upside, with another above the 200-day EMA which we'll deal with when this is back over the 200- EMA.
The BND was down slightly but it is still flirting with the old highs, and specifically the old closing high near 87.80. The chart of the 10-year Treasury yield below that shows it bouncing off that support line - the line that was only breached once, for a day, during the March panic sell-off for stocks and bonds. That isn't the most bullish looking chart however, with the lower high so we could see that 0.56 area tested again in the coming days / weeks.
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. 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.
