Stocks have been acting very odd of late. It's not very common to see the Dow lose over 500-points on a day where the Nasdaq is flat and the small caps are up 1%, which is what happened on Friday. It's been more of a tennis match as the returns keep switching with the Dow flat on Thursday while the Nasdaq and the small caps were down 2% plus. The dollar grinded higher all day, which hurt the I-fund, while bonds rallied and yield slipped down again.
[TABLE="align: center"]
[TR]
[TD="align: center"]
[/TD]
[TD]
[/TD]
[TD="width: 338, align: center"] Daily TSP Funds Return
[TABLE="align: center"]
[TR]
[TD="align: right"][/TD]
[/TR]
[/TABLE]
[/TD]
[/TR]
[/TABLE]
[TD="bgcolor: #eeeeee"][/TD]
The S&P 500 / C-fund is a mixed picture with strong resistance and two failed breakouts, but a bullish inverted head and shoulder pattern and buying at the 50-day EMA last week. The high trading volume on Friday was due to the quadruple witching expiation with futures and options contracts expiring causing a lot of finagling in the trading. But the heavy trading at the end of November may have been the real capitulation that landed the low, but of course a test of the lows - even on lighter volume, is always a possibility. But can it happen over this strong seasonal period, or do we see a test early next year - if at all?
The DWCPF (S-fund) has been a lot more tricky as this is in full on correction mode being down more than 10% from its highs. The current "h" formation is not generally good, but we saw one in September that did end up holding and preceded a nice rally into November. It really needs to make a move here above 2100 because there's no rule that says it has to stop at a correction, and if this level of support breaks, there not a lot of support below that.
A longer term weekly chart of the S-fund shows a breakdown, and that could be the warning we need to step aside, but I noticed that the weekly stochastic indicator (STO) is about as low as it was at the COVID crash lows. We're either due for a big bounce, or the bull market in small caps is in trouble.
The small caps of the Russell 2000, which are the smaller stocks in our S-fund without the mid-caps, actually shows a little more optimism with support and the 50-week moving average still holding. Again, either a bounce back to the top of the channel or a major breakdown is setting up. Often the turning point will occur in the first week of a new year so we may have to wait a couple of weeks for an answer.
The EFA (I-fund) was down sharply on Friday with that very odd strong performance from the dollar on Friday. Those two gaps that I marked have both been filled, but large gaps can to draw attention for a while because of missed opportunities (either to buy or sell) happened during those periods so investors are interested to see it get back in that area to clean up some of their positions they either wanted to dump at higher prices, or buy at lower prices. There is some rising support but it does have a hint of a bear flag look, so I'm not sure here. It may depend on the direction of the dollar.
AGG (Bonds / F-fund) was up on Friday but I wanted to show this very long term chart of the bond market, which I have been very bearish on, but history suggests the long term bullish trend is still intact. This could be a peak, but if you thought that at any other time over the last two decades - and actually further back - you would have been wrong. The bull market in bonds refuses to die.
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 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.
[TABLE="align: center"]
[TR]
[TD="align: center"]
[TD]
[/TD]
[TD="width: 338, align: center"] Daily TSP Funds Return
[TR]
[TD="align: right"][/TD]
[/TR]
[/TABLE]
[/TD]
[/TR]
[/TABLE]
[TD="bgcolor: #eeeeee"][/TD]
It was a quadruple witching expiration week so that could explain some of the oddities, or we can talk about tax selling, end of year window dressing from money managers getting done before the light volume trading kicks in, the spike in COVID cases, Chinese company bond debt defaults, etc., you name it. There's a lot of excuses out there. But however you slice it, investors are getting confused by the divergences.
I saw someone in the forum comment on a market analyst's new prediction, after they were completely wrong about their last call. They were basically dismissing what they were saying, and they now believe nobody knows what is going to happen.
I agree with that. None of us know exactly what will happen. Not me. Not you. Not Warren Buffett, Jim Cramer, or any other professional. But what we can do is look at probabilities to help make educated guesses.
If I tell you that the week between Christmas and New Years is up 73% of the time (I'm making that up to illustrate a point), that means it is down 27% of the time (or flat), and that is statistically significant enough to almost dismiss everything else. If it turns out to be a down week and we were in stocks to play the percentages, were we wrong? Yes, in hindsight, but you played the percentages and had the advantage going in. It just didn't pan out. Heck, the Detroit Lions beat the Arizona Cardinals yesterday, so anything can happen on any given day.
We have countless scenarios that show these streaks and probabilities, and with all things being equal (charts, indicators, sentiment, etc.) fighting against the probabilities is "probably" the wrong way to play it, although you certainly could be correct some of the time if you do.
Today is the 20th, so history suggests we could have flat day, or a 50/50 chance, but it's a good week historically. Of course, it won't be good every year but going back 30 years, here's what happened. Notice Christmas Eve (the 24th) was down more often than up, but ...
Chart provided courtesy of www.sentimentrader.com
... day -1 is the 23rd this year as the stock market and the TSP are closed on the 24th -- in case you are planning any trading around this data. Also, you can see above that the week between Christmas and New Year's (+1 thru +4) looks even stronger than the week before.
The chart above - surrounding the holidays, and below - showing how good December is historically, are old (end in 2011), but it is 62 years worth of data.
Chart provided courtesy of www.sentimentrader.com
I didn't take time to do the research because I swear that I had done spreadsheets a few years ago, but my recollection is that there was a strong tendency in recent years to see the week after Christmas move counter to the week before. So if the week before Christmas was up, next week had a good chance of being down, and vice versa.
OK, back to some real data: The dollar had a big day for some reason on Friday. That put some pressure on commodities and larger global companies who do a lot of business overseas.
The Yield on the 10-year Treasury fell below its 200-day EMA for the second time this month. The bond market really seems concerned about the Fed hampering economic growth with rate hikes and tapering next year.
I saw someone in the forum comment on a market analyst's new prediction, after they were completely wrong about their last call. They were basically dismissing what they were saying, and they now believe nobody knows what is going to happen.
I agree with that. None of us know exactly what will happen. Not me. Not you. Not Warren Buffett, Jim Cramer, or any other professional. But what we can do is look at probabilities to help make educated guesses.
If I tell you that the week between Christmas and New Years is up 73% of the time (I'm making that up to illustrate a point), that means it is down 27% of the time (or flat), and that is statistically significant enough to almost dismiss everything else. If it turns out to be a down week and we were in stocks to play the percentages, were we wrong? Yes, in hindsight, but you played the percentages and had the advantage going in. It just didn't pan out. Heck, the Detroit Lions beat the Arizona Cardinals yesterday, so anything can happen on any given day.
We have countless scenarios that show these streaks and probabilities, and with all things being equal (charts, indicators, sentiment, etc.) fighting against the probabilities is "probably" the wrong way to play it, although you certainly could be correct some of the time if you do.
Today is the 20th, so history suggests we could have flat day, or a 50/50 chance, but it's a good week historically. Of course, it won't be good every year but going back 30 years, here's what happened. Notice Christmas Eve (the 24th) was down more often than up, but ...
Chart provided courtesy of www.sentimentrader.com
... day -1 is the 23rd this year as the stock market and the TSP are closed on the 24th -- in case you are planning any trading around this data. Also, you can see above that the week between Christmas and New Year's (+1 thru +4) looks even stronger than the week before.
The chart above - surrounding the holidays, and below - showing how good December is historically, are old (end in 2011), but it is 62 years worth of data.
Chart provided courtesy of www.sentimentrader.com
I didn't take time to do the research because I swear that I had done spreadsheets a few years ago, but my recollection is that there was a strong tendency in recent years to see the week after Christmas move counter to the week before. So if the week before Christmas was up, next week had a good chance of being down, and vice versa.
OK, back to some real data: The dollar had a big day for some reason on Friday. That put some pressure on commodities and larger global companies who do a lot of business overseas.
The Yield on the 10-year Treasury fell below its 200-day EMA for the second time this month. The bond market really seems concerned about the Fed hampering economic growth with rate hikes and tapering next year.
The S&P 500 / C-fund is a mixed picture with strong resistance and two failed breakouts, but a bullish inverted head and shoulder pattern and buying at the 50-day EMA last week. The high trading volume on Friday was due to the quadruple witching expiation with futures and options contracts expiring causing a lot of finagling in the trading. But the heavy trading at the end of November may have been the real capitulation that landed the low, but of course a test of the lows - even on lighter volume, is always a possibility. But can it happen over this strong seasonal period, or do we see a test early next year - if at all?
The DWCPF (S-fund) has been a lot more tricky as this is in full on correction mode being down more than 10% from its highs. The current "h" formation is not generally good, but we saw one in September that did end up holding and preceded a nice rally into November. It really needs to make a move here above 2100 because there's no rule that says it has to stop at a correction, and if this level of support breaks, there not a lot of support below that.
A longer term weekly chart of the S-fund shows a breakdown, and that could be the warning we need to step aside, but I noticed that the weekly stochastic indicator (STO) is about as low as it was at the COVID crash lows. We're either due for a big bounce, or the bull market in small caps is in trouble.
The small caps of the Russell 2000, which are the smaller stocks in our S-fund without the mid-caps, actually shows a little more optimism with support and the 50-week moving average still holding. Again, either a bounce back to the top of the channel or a major breakdown is setting up. Often the turning point will occur in the first week of a new year so we may have to wait a couple of weeks for an answer.
The EFA (I-fund) was down sharply on Friday with that very odd strong performance from the dollar on Friday. Those two gaps that I marked have both been filled, but large gaps can to draw attention for a while because of missed opportunities (either to buy or sell) happened during those periods so investors are interested to see it get back in that area to clean up some of their positions they either wanted to dump at higher prices, or buy at lower prices. There is some rising support but it does have a hint of a bear flag look, so I'm not sure here. It may depend on the direction of the dollar.
AGG (Bonds / F-fund) was up on Friday but I wanted to show this very long term chart of the bond market, which I have been very bearish on, but history suggests the long term bullish trend is still intact. This could be a peak, but if you thought that at any other time over the last two decades - and actually further back - you would have been wrong. The bull market in bonds refuses to die.
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 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.
