Stocks opened mostly flat on Wednesday but some comments from the Fed Chairman Powell changed things in a hurry. The Dow lost 517-points, which was actually well off the lows of the day which was closer to a 700 point loss. Small caps lagged, bonds were up, and the question now is, has the bear market rally run its course?
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Fed Chairman Powell spoke yesterday and I think investors were a little alarmed by his tone. He said that more measures will likely be needed to help the economy, which sounds good to those who like cheap money, but it was a rather dire picture of the current situation.
We've heard from some big names in the investment world this week, and while they may not have completely agreed, none of them though that the worst was totally over yet.
Bill Miller of Miller valued Partners, whose comments yesterday may have been responsible for the late buying, was the most optimistic and said the market isn't "dramatically overvalued", and said banks are "very, very cheap."
The interesting thing about Miller's comments about not being dramatically overvalued is that during bear markets, stocks don't usually get to fairly valued and start a new bull market. They tend to swing to the other side and get extremely undervalued before we see a bottom.
The other two were more pessimistic over the market and economy.
Stanley Druckenmiller said, "The risk-reward for equity is maybe as bad as I've seen it in my career." He added, "The consensus seems to be 'don't worry, the Fed has your back. There's only one problem with that: Our analysis says it's not true.'" He also said the idea of a V-shaped economic recovery was "a fantasy."
David Tepper said this is the second-most overvalued stock market he’s ever seen, behind only 1999- 2000. He also said, “There might have been a bottom put in ... but that doesn’t mean you can’t fall significantly from these levels.”
So three guys who have been in the business a long time seem to agree that prices could go lower, although Miller thinks there are some opportunities in some sectors.
As I said above, there was some late buying, possibly on Miller's statements, and the futures moved higher after the bell yesterday, and again when they reopened in the evening session on Wednesday night. So like we saw in March when there were several huge rallies sandwiched in between a couple of very poor days, we could see the bulls make a stand, but the overall momentum may have shifted back in the bears' favor.
At this point we'll see if investors are back in the "sell the rips" mode after about seven weeks of "buy the dips."
The S&P 500 (C-fund) fell sharply again on Wednesday taking out another level of support plus the 20 and 50 day EMAs. That was the second trading channel to break down (blue, then green) and now we still have that red rounded top formation that I showed on Monday. Any bounce back rally today will have to test the possible new resistance from from underneath the 50-day EMA , as well as the bottom of that green trading channel. Trading volume picked up yesterday.
The DWCPF (S-fund) also broke some key support and needs some help in a hurry. One day is not an official breakdown in my book, just a red flag, so let's see what happens the rest of the week. We've been thinking this monster relief rally had to run out of steam at some point, and this may be it.
The EFA (I-fund) has closed below the 50-day EMA for a second day yesterday and broke one support line several days ago, but there are a couple more that could help it. One is at yesterday's lows.
The Dow Transportation Index has been one index that hasn't performed all that well during the rebound. Yes, it bounced back off the lows, but it only managed to close above the 50-day EMA for one day back in April. It's a very economically sensitive sector, so that makes sense.
The High Yield Corporate Bonds were down rather sharply yesterday, but since that spike up on the day the Fed announced possibly buying corporate debt, a large gap had been opened, and this has been trading within that gap for a month now. It is back below the 50-day EMA.
The BND / F-fund rallied for a second day and remains in that downward sloping trading channel, which is actually technically a bull flag since it is coming off that big April rally. It's just gotten so long that it doesn't feel "normal", but it could still break out -- or continue to slope lower. My thought was that it would breakout if stocks rolled over and since they are starting to...
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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Fed Chairman Powell spoke yesterday and I think investors were a little alarmed by his tone. He said that more measures will likely be needed to help the economy, which sounds good to those who like cheap money, but it was a rather dire picture of the current situation.
We've heard from some big names in the investment world this week, and while they may not have completely agreed, none of them though that the worst was totally over yet.
Bill Miller of Miller valued Partners, whose comments yesterday may have been responsible for the late buying, was the most optimistic and said the market isn't "dramatically overvalued", and said banks are "very, very cheap."
The interesting thing about Miller's comments about not being dramatically overvalued is that during bear markets, stocks don't usually get to fairly valued and start a new bull market. They tend to swing to the other side and get extremely undervalued before we see a bottom.
The other two were more pessimistic over the market and economy.
Stanley Druckenmiller said, "The risk-reward for equity is maybe as bad as I've seen it in my career." He added, "The consensus seems to be 'don't worry, the Fed has your back. There's only one problem with that: Our analysis says it's not true.'" He also said the idea of a V-shaped economic recovery was "a fantasy."
David Tepper said this is the second-most overvalued stock market he’s ever seen, behind only 1999- 2000. He also said, “There might have been a bottom put in ... but that doesn’t mean you can’t fall significantly from these levels.”
So three guys who have been in the business a long time seem to agree that prices could go lower, although Miller thinks there are some opportunities in some sectors.
As I said above, there was some late buying, possibly on Miller's statements, and the futures moved higher after the bell yesterday, and again when they reopened in the evening session on Wednesday night. So like we saw in March when there were several huge rallies sandwiched in between a couple of very poor days, we could see the bulls make a stand, but the overall momentum may have shifted back in the bears' favor.
At this point we'll see if investors are back in the "sell the rips" mode after about seven weeks of "buy the dips."
The S&P 500 (C-fund) fell sharply again on Wednesday taking out another level of support plus the 20 and 50 day EMAs. That was the second trading channel to break down (blue, then green) and now we still have that red rounded top formation that I showed on Monday. Any bounce back rally today will have to test the possible new resistance from from underneath the 50-day EMA , as well as the bottom of that green trading channel. Trading volume picked up yesterday.
The DWCPF (S-fund) also broke some key support and needs some help in a hurry. One day is not an official breakdown in my book, just a red flag, so let's see what happens the rest of the week. We've been thinking this monster relief rally had to run out of steam at some point, and this may be it.
The EFA (I-fund) has closed below the 50-day EMA for a second day yesterday and broke one support line several days ago, but there are a couple more that could help it. One is at yesterday's lows.
The Dow Transportation Index has been one index that hasn't performed all that well during the rebound. Yes, it bounced back off the lows, but it only managed to close above the 50-day EMA for one day back in April. It's a very economically sensitive sector, so that makes sense.
The High Yield Corporate Bonds were down rather sharply yesterday, but since that spike up on the day the Fed announced possibly buying corporate debt, a large gap had been opened, and this has been trading within that gap for a month now. It is back below the 50-day EMA.
The BND / F-fund rallied for a second day and remains in that downward sloping trading channel, which is actually technically a bull flag since it is coming off that big April rally. It's just gotten so long that it doesn't feel "normal", but it could still break out -- or continue to slope lower. My thought was that it would breakout if stocks rolled over and since they are starting to...
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.
