Stocks battled back from sharp early morning weakness to close with just minor losses on Friday. The Dow gained 47-points thanks to a 14% gain in Disney's stock, bucking the negative trend of the broader market indices. The S&P 500 ended the week with a modest, and probably much needed, loss of near 1%, while small caps continued their winning ways with another positive week. Bonds were up and may have broken out - again?
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It looked like the bears were finally going to take charge, but we've seen this movie before. The S&P 500 had just made a new all-time high on Wednesday and the bulls could hardly stand sitting back for a day because both Thursday and Friday saw sharp morning pullbacks get bought up rather quickly. You would think at some point the buying would get exhausted with the small caps up about 25% in the last six weeks. We're seeing IPO's nearly double in price on their first day of trading, yet many don't even turn a profit. History hasn't always been kind to these types of market environments, but they seem to last longer than anyone expects.
Being that last week (12/07 - 12/11) was negative for the S&P 500, perhaps the seasonality chart is in play to some extent, which would potentially portend to what we could see during the Santa Claus rally which historically (on average) starts near Dec. 21. Until then, maybe more choppiness or a dip?
Chart provided courtesy of www.sentimentrader.com
There are obviously exceptions. When the above chart says the S&P 500 has been up 60% or even 70% of the time on a given date going back 30 years, that means 30% to 40% of the time it was down. We all remember the late 2018 "bear market" where the S&P fell 19% off the fall highs before bottoming on Dec. 24.
Seasonality is not a major indicator, although I do believe around major holidays it can be. It just doesn't work 100% of the time.
President Trump's efforts to fight the election results has been coming up short after the SCOTUS declined to take on the Texas lawsuit late last week. The battle is still going on but so far the market seems unconvinced or uninterested with COVID, vaccines, and stimulus headlines doing more of the pushing and pulling. The futures are up on Sunday evening, perhaps on the SCOTUS action, I'm not sure.
They did extend the government funding by a week as they continue to work on a COVID relief deal, but that's clearly going to continue to be an issue this week as the funding deal expires on Saturday again.
States are locking down businesses and people again, the government is wanting to spend trillions on relief, yet stocks are at all-time highs and valuation models are at historically overvalued levels. Have you seen the housing market? It's booming. Meanwhile the Fed is still pumping insane amount of liquidity into the system. It's the best of times, it's the worst of times.
Like we've said before, the Fed and stimulus makes a good case to be in stocks, even if the balloon is probably past its popping point. What could go wrong, right?
The S&P 500 (C-fund) continues to battle back from every early decline, and Friday's pullback found support near the 20-day EMA. Below that there isn't a whole lot of support so the bulls had to hold it or risk a breakdown. I highlighted the PMO (price oscillator) as it just crossed below its moving average. We saw a similar cross in October and the pullback had a week or so or more left in it before making a bottom.
The weekly chart chart shows the negative candlestick and it closed just below one of those rising resistance lines (blue) that it had crossed and closed above in the prior week. The red rising resistance line is what will be used as a test of support on any pullback, and it's less than 2% below Friday's close so that's a good possibility at some point this week. Whether it holds or not is what we want to know because the next support line is about 100-points below that.
The DWCPF Index / S-fund was down and lagged with its 0.4% loss on Friday. It did hold onto that narrow rising trading channel, but it's getting quite extended for a narrow range. The rubber band may be getting frayed at this point.
The EFA / I-fund has a similar formation and the falling dollar has really helped it outperform the S&P 500 for the last couple of months, but some of those open gaps will be calling eventually.
The VIX popped above 25 early on Friday, but like every other sell-off we have seen in stocks lately, the fear subsided into the close and the VIX settled down below 24. It's still above that descending channel, and that's three closes above it, so maybe the bears are gaining some traction?
BND (Bonds / F-fund) broke out on Friday, above that formation I was wonder if we should be calling a bull flag, and in the end it did act like a bull flag. That 50-day EMA held on three straight tests, and this pop higher means yields are falling, and that could mean the bond market is not that excited about the economic growth.
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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It looked like the bears were finally going to take charge, but we've seen this movie before. The S&P 500 had just made a new all-time high on Wednesday and the bulls could hardly stand sitting back for a day because both Thursday and Friday saw sharp morning pullbacks get bought up rather quickly. You would think at some point the buying would get exhausted with the small caps up about 25% in the last six weeks. We're seeing IPO's nearly double in price on their first day of trading, yet many don't even turn a profit. History hasn't always been kind to these types of market environments, but they seem to last longer than anyone expects.
Being that last week (12/07 - 12/11) was negative for the S&P 500, perhaps the seasonality chart is in play to some extent, which would potentially portend to what we could see during the Santa Claus rally which historically (on average) starts near Dec. 21. Until then, maybe more choppiness or a dip?
Chart provided courtesy of www.sentimentrader.com
There are obviously exceptions. When the above chart says the S&P 500 has been up 60% or even 70% of the time on a given date going back 30 years, that means 30% to 40% of the time it was down. We all remember the late 2018 "bear market" where the S&P fell 19% off the fall highs before bottoming on Dec. 24.
Seasonality is not a major indicator, although I do believe around major holidays it can be. It just doesn't work 100% of the time.
President Trump's efforts to fight the election results has been coming up short after the SCOTUS declined to take on the Texas lawsuit late last week. The battle is still going on but so far the market seems unconvinced or uninterested with COVID, vaccines, and stimulus headlines doing more of the pushing and pulling. The futures are up on Sunday evening, perhaps on the SCOTUS action, I'm not sure.
They did extend the government funding by a week as they continue to work on a COVID relief deal, but that's clearly going to continue to be an issue this week as the funding deal expires on Saturday again.
States are locking down businesses and people again, the government is wanting to spend trillions on relief, yet stocks are at all-time highs and valuation models are at historically overvalued levels. Have you seen the housing market? It's booming. Meanwhile the Fed is still pumping insane amount of liquidity into the system. It's the best of times, it's the worst of times.
Like we've said before, the Fed and stimulus makes a good case to be in stocks, even if the balloon is probably past its popping point. What could go wrong, right?
The S&P 500 (C-fund) continues to battle back from every early decline, and Friday's pullback found support near the 20-day EMA. Below that there isn't a whole lot of support so the bulls had to hold it or risk a breakdown. I highlighted the PMO (price oscillator) as it just crossed below its moving average. We saw a similar cross in October and the pullback had a week or so or more left in it before making a bottom.
The weekly chart chart shows the negative candlestick and it closed just below one of those rising resistance lines (blue) that it had crossed and closed above in the prior week. The red rising resistance line is what will be used as a test of support on any pullback, and it's less than 2% below Friday's close so that's a good possibility at some point this week. Whether it holds or not is what we want to know because the next support line is about 100-points below that.
The DWCPF Index / S-fund was down and lagged with its 0.4% loss on Friday. It did hold onto that narrow rising trading channel, but it's getting quite extended for a narrow range. The rubber band may be getting frayed at this point.
The EFA / I-fund has a similar formation and the falling dollar has really helped it outperform the S&P 500 for the last couple of months, but some of those open gaps will be calling eventually.
The VIX popped above 25 early on Friday, but like every other sell-off we have seen in stocks lately, the fear subsided into the close and the VIX settled down below 24. It's still above that descending channel, and that's three closes above it, so maybe the bears are gaining some traction?
BND (Bonds / F-fund) broke out on Friday, above that formation I was wonder if we should be calling a bull flag, and in the end it did act like a bull flag. That 50-day EMA held on three straight tests, and this pop higher means yields are falling, and that could mean the bond market is not that excited about the economic growth.
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.
