Stocks opened rather flat on Friday and chopped between gains and losses until after lunchtime when we saw a steady stream of buying in afternoon trading, and into the close. Although many of the indices are where they were about two weeks ago, it still feels like the bulls are in charge as the bears' effort has been lackluster of late. The Dow gained 260-points with gains of more than 1% across most indices.
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If anyone would have told you at the beginning of this year, a year that followed a 31% gain in the S&P 500 the prior year, that we would see nearly 30 million new people file for unemployment benefits, people were staying home and businesses were closed all across the country - and the world, oil would be down to $16 a barrel after starting the year over $60, the 10-year T-note would be yielding 0.60%, and all this coming when the S&P 500 was already overvalued by nearly 40% based on historical margin adjusted price to earnings ratios, What would you think stocks would be doing? Yes, they're down, but the S&P 500 is only down 12% for the year. Surprising might not be strong enough of a word.
Well, that's where we are, and investors are scrambling to understand how this how this economy destroying pandemic is going to play out over the next several months. Earnings are coming in, and this will be a big week for those first quarter reports, which will obviously be negatively impacted by the virus, but again the stock market is almost acting like this has already been priced that in and investors are looking 6 to 9 months down the road already.
Is that the case? Someone may have to tell that to the bond market where, as we mentioned above, the yield on the 10-year Treasury yield is down near record all time lows of lows near 0.60%. And on Friday the credit market - something that the stock market is very sensitive about, saw the High Yield Corporate Bond Fund fall almost 1%, and is down about 7% from the April high, while stocks were rallying.
It's all very interesting and don't think investors are all too comfortable with the situation, yet they keep on buying. It can all be both very confusing, and very interesting.
The S&P 500 (C-fund) rallied on Friday and it is now back above that key 50-day EMA. We've actually seen 4 closes above the 50-day EMA, but not in a row. We get one day above, then it pulls back. We then had 2 closes above, then another pullback. Friday makes just one in a row now. 3 to 5 is considered a confirmation of a breakout, but as you can see on the chart there are other areas of resistance just above the 50-day EMA that could cause a problem.
The DWCPF / S-fund continues to hold on impressively near the top of a small range and that could be considered a bullish flag ready to breakout, but it remains below the 50-day EMA in a bear market and creating kind of a flat-top look over the last couple of weeks, so the technical analysis isn't making it all that easy either.
The Dow Transportation Index looks to also be forming a bull flag, but in a bear market, below the 50-day EMA with two large gaps below, after breaking below a rising support line, may not be the recipe for a breakout, but nothing would surprise me at this point.
The price of oil was up again on Friday so that is a pretty dramatic move off of last week's lows, but there's lot of resistance overhead and a snap back rally after the crash isn't unusual, although it may not last too long. Of course we have to ask, how low can it go? This is starting to look ridiculous, unless the economy is in full collapse mode, and we know the stock market isn't suggesting that.
The BND / F-fund has been fairly flat with yields holding steady but at historically low levels. It would seem like the path of least resistance for yields would be higher (bond prices and the F-fund lower) but they're not budging, perhaps suggesting that yields may want to go even lower. If you recall, German bond yields have been negative for quite some time, so that's always a possibility.
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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[TD="align: center"] Daily TSP Funds Return
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[TD="align: right"][/TD]
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[TD="align: center"]
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If anyone would have told you at the beginning of this year, a year that followed a 31% gain in the S&P 500 the prior year, that we would see nearly 30 million new people file for unemployment benefits, people were staying home and businesses were closed all across the country - and the world, oil would be down to $16 a barrel after starting the year over $60, the 10-year T-note would be yielding 0.60%, and all this coming when the S&P 500 was already overvalued by nearly 40% based on historical margin adjusted price to earnings ratios, What would you think stocks would be doing? Yes, they're down, but the S&P 500 is only down 12% for the year. Surprising might not be strong enough of a word.
Well, that's where we are, and investors are scrambling to understand how this how this economy destroying pandemic is going to play out over the next several months. Earnings are coming in, and this will be a big week for those first quarter reports, which will obviously be negatively impacted by the virus, but again the stock market is almost acting like this has already been priced that in and investors are looking 6 to 9 months down the road already.
Is that the case? Someone may have to tell that to the bond market where, as we mentioned above, the yield on the 10-year Treasury yield is down near record all time lows of lows near 0.60%. And on Friday the credit market - something that the stock market is very sensitive about, saw the High Yield Corporate Bond Fund fall almost 1%, and is down about 7% from the April high, while stocks were rallying.
It's all very interesting and don't think investors are all too comfortable with the situation, yet they keep on buying. It can all be both very confusing, and very interesting.
The S&P 500 (C-fund) rallied on Friday and it is now back above that key 50-day EMA. We've actually seen 4 closes above the 50-day EMA, but not in a row. We get one day above, then it pulls back. We then had 2 closes above, then another pullback. Friday makes just one in a row now. 3 to 5 is considered a confirmation of a breakout, but as you can see on the chart there are other areas of resistance just above the 50-day EMA that could cause a problem.
The DWCPF / S-fund continues to hold on impressively near the top of a small range and that could be considered a bullish flag ready to breakout, but it remains below the 50-day EMA in a bear market and creating kind of a flat-top look over the last couple of weeks, so the technical analysis isn't making it all that easy either.
The Dow Transportation Index looks to also be forming a bull flag, but in a bear market, below the 50-day EMA with two large gaps below, after breaking below a rising support line, may not be the recipe for a breakout, but nothing would surprise me at this point.
The price of oil was up again on Friday so that is a pretty dramatic move off of last week's lows, but there's lot of resistance overhead and a snap back rally after the crash isn't unusual, although it may not last too long. Of course we have to ask, how low can it go? This is starting to look ridiculous, unless the economy is in full collapse mode, and we know the stock market isn't suggesting that.
The BND / F-fund has been fairly flat with yields holding steady but at historically low levels. It would seem like the path of least resistance for yields would be higher (bond prices and the F-fund lower) but they're not budging, perhaps suggesting that yields may want to go even lower. If you recall, German bond yields have been negative for quite some time, so that's always a possibility.
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.
