Stocks continued their winning way yesterday with another big day of gains, particularly the small caps which fed off the lower yields. The dollar was down helping the I-fund to a big day as well. The charts are trending up strongly as we enter the historically bullish Santa Claus rally week, but is there anything left on the bone for the holidays?
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If you watch or read any financial news you will get a lot of bullish commentary since [almost] everyone likes a bullish story, but this type of action happens all the time and these runaway markets are more difficult to navigate than it looks. As investors either jump in or hold onto stocks that have come a long way since the October lows, sentiment moved from hope, to excitement, to euphoria but eventually disappointment - but when?
Looking at the not so distant past we have seen several of these types of rallies and no one rang a bell at the top, but tops happen. Is it different this time?
Here is the current rally off those Octobers lows. That's about 650 points off the low, or well over 10%, with barely a pullback in sight.
When to take profits is not easy, especially this time of year, but often the first one out the door keeps the most of the rally, if you were smart enough, or lucky enough, to have gotten a big piece of the gains.
This chart shows the rally from the March lows from earlier this year, until the end of July. 700-points and unstoppable, right?
It's never that easy as stocks tumbled for the next three months.
How about in 2022? We had a big rally from June into the end of August. If you missed it, should you have chased the rally?
No. That wouldn't have been a good idea.
In 2019 there was a very strong rally of about 10% in June and July, and the move to new highs over 3025 looked like a fresh breakout...
A week later.
Later, in the 4th quarter of 2019 and into 2020, it was a bull's dream as the SP 500 rallied nearly 20% in just over 4-months. We even had a decent pullback to the 50-day EMA that held in January of 2020 opening the door for another leg higher, right?
COVID!
How about the rally in 2018. Surely that one had some staying power as the economy was looking good and the chart was building some nice looking support above the 50-day EMA.
Bam!
So, if you're enjoying this rally I am not saying it is coming to an end any time soon -- but it could, and you probably want an exit plan for when things change. Your hope is that the fall off the peak isn't too severe or you'll give back too much or your gains.
We will get the PCE Prices report on Friday, as well as the Personal Spending and Income reports. That will be the last trading day before Christmas and could be a very light trading volume day. This is the key inflation indicator for the Fed and it's not likely to cause any trouble, but if it does happen to be hotter than expected, on a light trading day, it could be a market mover.
DWCPF (S-fund) is following the bond market - as yields go down, this goes up. That makes Friday's PCE Prices report an important one as it wouldn't take much to snap back this overly stretched rubber band, even if the trend remains up. A correction is due and there are plenty of open gaps below that need to be satisfied.
EFA (I-fund) was given a boost with the 0.44% decline in the dollar (UUP) yesterday. It's back over that failed breakout resistance line, so that's a positive, but the angle of incline is a little ridiculous and not very sustainable.
BND (Bonds / F-fund) continues to climb higher as yields continue to move lower. It's currently pinned to the top of that trading channel and so far there has been no real overbought pullback. Pullbacks are fairly common when the purple 50-day EMA initially crosses above the blue 200-day EMA, but it hasn't happened yet.
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
For more info our other premium services, please go here... www.tsptalk.com/premiums.html
Daily Market Commentary Archives
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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If you watch or read any financial news you will get a lot of bullish commentary since [almost] everyone likes a bullish story, but this type of action happens all the time and these runaway markets are more difficult to navigate than it looks. As investors either jump in or hold onto stocks that have come a long way since the October lows, sentiment moved from hope, to excitement, to euphoria but eventually disappointment - but when?
Looking at the not so distant past we have seen several of these types of rallies and no one rang a bell at the top, but tops happen. Is it different this time?
Here is the current rally off those Octobers lows. That's about 650 points off the low, or well over 10%, with barely a pullback in sight.
When to take profits is not easy, especially this time of year, but often the first one out the door keeps the most of the rally, if you were smart enough, or lucky enough, to have gotten a big piece of the gains.
This chart shows the rally from the March lows from earlier this year, until the end of July. 700-points and unstoppable, right?
It's never that easy as stocks tumbled for the next three months.
How about in 2022? We had a big rally from June into the end of August. If you missed it, should you have chased the rally?
No. That wouldn't have been a good idea.
In 2019 there was a very strong rally of about 10% in June and July, and the move to new highs over 3025 looked like a fresh breakout...
A week later.
Later, in the 4th quarter of 2019 and into 2020, it was a bull's dream as the SP 500 rallied nearly 20% in just over 4-months. We even had a decent pullback to the 50-day EMA that held in January of 2020 opening the door for another leg higher, right?
COVID!
How about the rally in 2018. Surely that one had some staying power as the economy was looking good and the chart was building some nice looking support above the 50-day EMA.
Bam!
So, if you're enjoying this rally I am not saying it is coming to an end any time soon -- but it could, and you probably want an exit plan for when things change. Your hope is that the fall off the peak isn't too severe or you'll give back too much or your gains.
We will get the PCE Prices report on Friday, as well as the Personal Spending and Income reports. That will be the last trading day before Christmas and could be a very light trading volume day. This is the key inflation indicator for the Fed and it's not likely to cause any trouble, but if it does happen to be hotter than expected, on a light trading day, it could be a market mover.
DWCPF (S-fund) is following the bond market - as yields go down, this goes up. That makes Friday's PCE Prices report an important one as it wouldn't take much to snap back this overly stretched rubber band, even if the trend remains up. A correction is due and there are plenty of open gaps below that need to be satisfied.
EFA (I-fund) was given a boost with the 0.44% decline in the dollar (UUP) yesterday. It's back over that failed breakout resistance line, so that's a positive, but the angle of incline is a little ridiculous and not very sustainable.
BND (Bonds / F-fund) continues to climb higher as yields continue to move lower. It's currently pinned to the top of that trading channel and so far there has been no real overbought pullback. Pullbacks are fairly common when the purple 50-day EMA initially crosses above the blue 200-day EMA, but it hasn't happened yet.
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
For more info our other premium services, please go here... www.tsptalk.com/premiums.html
Daily Market Commentary Archives
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.
