It was a very choppy day yesterday as investors were trying to figure out if they should be taking advantage of the lower prices caused by the Tuesday sell off, or hold off. The Dow gained 30-points by the end of the day but it, and the other indices, were trading all over the map yesterday, and the closing prices were just where they stopped. On a positive note the indices went from the lows of the days to close with moderate gains in the final 45 minutes, so buyers were stepping up late. Bonds (F) were up slightly as yields closed off their highs, and the dollar also pulled back some after the big rally on Tuesday.
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The inflation picture is still alive and well so there have been no shifts from either the data, nor the Fed, so it's tough to assume a bottom is forming. Some say the data outside of the CPI report is actually showing better signs easing inflation, but there's another storm brewing out there that I touched on yesterday.
The potential for a railroad strike is intensifying and the ramifications there is adding to the disruption in the supply chain, and if retailers cannot get inventory, it could be another catalyst for the inflation problem.
The Dow Transportation Index was down 2% early on yesterday and it looked as if it was reacting to this news, but it actually recovered with the rest of the market and closed above support. That was the good news. The bad new is the ugly blue head and shoulders pattern that has been developing here. The downside target of a break down from the blue head and shoulders, which they tend to do, would be right near the June lows. And, to add insult to injury, all of that could be part of the head of an even larger head and shoulder pattern (green.) That's three H&S patterns and that's not good.
Being one of the market leaders, if this does attempt to test the June lows, there's a pretty good chance that the other indices would follow.
The yield on the 10-year flirted again with the June highs but backed off as we may be seeing a double top pullback before this makes an attempt at new highs. That could make the bond fund attractive, but maybe only for a short term play. However, with only two IFTs a month, trading the F-fund seems almost counter productive compared to the moves that we could see in stocks. But for less volatility, the bond market may be a better place to play for someone until things settle don for stocks. Also, if there is a recession, yields will come down and Bonds could be the best game in town. The question is, is this THE double top that stops yields, or is it just a typical temporary pause?
Another headwind for the stock market could be those higher yields and internets rates. Money Markets, CD's, the G-fund, etc., are hitting rates that we haven't seen in many years, and that gives the current volatile stock market some competition. When interest rates were near 0% for a decade or more, that was not the best place to put money, but 3.5%, 4% or more starts to get attractive to more conservative investors.
These two longer-term (1-year) charts of the S&P 500 (C-fund) and DWCPF (S-fund) show the downtrends, but an argument could be made that they are trying to carve out a low as both have held at a confluence of resistance.
And in the case of the DWCPF (S) it has been trading above its long-term trading channel since it broke out in early August. This would be the perfect place to hold and start a new upside trend. But it has to hold.
If the charts remain below their 50 and 200 day EMA, and / or they don't hold at the blue and red support lines, all bets are off, but at least there are some signs of support.
The S&P 500 (C-fund) digested some of Tuesday's losses yesterday, but a 0.34% gain after a 4.32% loss the prior day, isn't much to write home about. What jumps out on the chart to me is the blue rising resistance line holding again, and also the two open gaps - one above, one below, that could be short-term targets. The overhead gap looks like it is somewhere near 4080, but the "stealth gap" would extend all the way up above 4100 to where the market closed on Monday - so the space from Monday's close to Tuesday's high is a gap. On the down side that 3800 area has been sitting there for a couple of months. The 3950 area is what I am watching. To break or not to break?
The DWCPF (S-fund / small caps) also has that gap and stealth gap above, and there really isn't an open gap below. The 1-year chart I showed above gives a real good argument why the recent lows earlier this month could hold. I don't want to sound too enthusiastic when the chart is below the 50 and 200-day EMAs. And if that support doesn't hold, it will likely revisit 1500 quickly.
The EFA (I-fund) is trying to hold onto that double bottom low and the fact that it hasn't made new lows yet despite the recent bad news, might be a good sign. But the chart is still in a downtrend, below the 50 and 200-day EMA, and in a bear market, so it's tough to anticipate a positive outcome.
BND (bonds / F-fund) was up slightly but remains in a tight descending trading channel with eyes on the June lows. At some point this will get a playable bounce, but as I mentioned above, with two IFTs per month, it's tough to trade the F-fund when the C, S, and I funds are so volatile and provide better opportunities to catch a big bounce here and there. But if stocks are still wallowing and a trade sets up here, why not?
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
To get weekly or daily notifications when we post new commentary, sign up HERE.
Thanks so much 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 inflation picture is still alive and well so there have been no shifts from either the data, nor the Fed, so it's tough to assume a bottom is forming. Some say the data outside of the CPI report is actually showing better signs easing inflation, but there's another storm brewing out there that I touched on yesterday.
The potential for a railroad strike is intensifying and the ramifications there is adding to the disruption in the supply chain, and if retailers cannot get inventory, it could be another catalyst for the inflation problem.
The Dow Transportation Index was down 2% early on yesterday and it looked as if it was reacting to this news, but it actually recovered with the rest of the market and closed above support. That was the good news. The bad new is the ugly blue head and shoulders pattern that has been developing here. The downside target of a break down from the blue head and shoulders, which they tend to do, would be right near the June lows. And, to add insult to injury, all of that could be part of the head of an even larger head and shoulder pattern (green.) That's three H&S patterns and that's not good.
Being one of the market leaders, if this does attempt to test the June lows, there's a pretty good chance that the other indices would follow.
The yield on the 10-year flirted again with the June highs but backed off as we may be seeing a double top pullback before this makes an attempt at new highs. That could make the bond fund attractive, but maybe only for a short term play. However, with only two IFTs a month, trading the F-fund seems almost counter productive compared to the moves that we could see in stocks. But for less volatility, the bond market may be a better place to play for someone until things settle don for stocks. Also, if there is a recession, yields will come down and Bonds could be the best game in town. The question is, is this THE double top that stops yields, or is it just a typical temporary pause?
Another headwind for the stock market could be those higher yields and internets rates. Money Markets, CD's, the G-fund, etc., are hitting rates that we haven't seen in many years, and that gives the current volatile stock market some competition. When interest rates were near 0% for a decade or more, that was not the best place to put money, but 3.5%, 4% or more starts to get attractive to more conservative investors.
These two longer-term (1-year) charts of the S&P 500 (C-fund) and DWCPF (S-fund) show the downtrends, but an argument could be made that they are trying to carve out a low as both have held at a confluence of resistance.
And in the case of the DWCPF (S) it has been trading above its long-term trading channel since it broke out in early August. This would be the perfect place to hold and start a new upside trend. But it has to hold.
If the charts remain below their 50 and 200 day EMA, and / or they don't hold at the blue and red support lines, all bets are off, but at least there are some signs of support.
The S&P 500 (C-fund) digested some of Tuesday's losses yesterday, but a 0.34% gain after a 4.32% loss the prior day, isn't much to write home about. What jumps out on the chart to me is the blue rising resistance line holding again, and also the two open gaps - one above, one below, that could be short-term targets. The overhead gap looks like it is somewhere near 4080, but the "stealth gap" would extend all the way up above 4100 to where the market closed on Monday - so the space from Monday's close to Tuesday's high is a gap. On the down side that 3800 area has been sitting there for a couple of months. The 3950 area is what I am watching. To break or not to break?
The DWCPF (S-fund / small caps) also has that gap and stealth gap above, and there really isn't an open gap below. The 1-year chart I showed above gives a real good argument why the recent lows earlier this month could hold. I don't want to sound too enthusiastic when the chart is below the 50 and 200-day EMAs. And if that support doesn't hold, it will likely revisit 1500 quickly.
The EFA (I-fund) is trying to hold onto that double bottom low and the fact that it hasn't made new lows yet despite the recent bad news, might be a good sign. But the chart is still in a downtrend, below the 50 and 200-day EMA, and in a bear market, so it's tough to anticipate a positive outcome.
BND (bonds / F-fund) was up slightly but remains in a tight descending trading channel with eyes on the June lows. At some point this will get a playable bounce, but as I mentioned above, with two IFTs per month, it's tough to trade the F-fund when the C, S, and I funds are so volatile and provide better opportunities to catch a big bounce here and there. But if stocks are still wallowing and a trade sets up here, why not?
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
To get weekly or daily notifications when we post new commentary, sign up HERE.
Thanks so much 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.
