The bulls kept the momentum going in the stock market on Monday. Can the rally survive a possible Turnaround Tuesday? The news flow is light, the bears don't have much ammunition right now, and the stock market now has an 8-day winning streak. The equal Weighted S&P 500 actually closed at a new all-time high yesterday. Bond yields were down, helping small caps, and the dollar was down helping the I-fund. Oil was down another 3% as it gets closer to the recent lows.
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OK, let's get the most important development out of the way (sarcasm.) The S&P 500 closed at 5608 yesterday, breaking the odd streak of six straight days where the closing price contained only 3's, 4's and 5's. See prior commentaries if you don't know what I'm talking about, or ignore it because it's not really that important.
What is important is just how strong the market has become after a death spiral sell off just a couple of weeks ago. I don't think much has changed since then, but the downside was so exaggerated on news that probably didn't warrant a precipitous decline, but it was a 10% shake out, and now people are scrambling to get back in. The fact that the rebound has been on light volume could mean that there is still plenty of bears out there that still need to try to catch up.
As our TSP Talk Plus subscribers know, I was partial victim of that decline / quick rebound by selling some of my stock fund holdings early in the rebound, expecting a the rally to fail, so I am not making everything I could be, but I am making something. Now the question for the underinvested is whether to chase the rally, or be patient and wait for another pullback, or at least a better setup. There's no correct answer until after the fact - but of course an educated guess is usually better than hope.
Anything is possible, and I have been doing this long enough to have seen almost every type of outcome, but rebounds of this magnitude rarely just fail and come right back down, but again possible and be careful - we do have a full moon out there so...
But a dip or consolidation is likely at some point soon. Testing the prior highs is also quite likely as we get closer but we also tend to see "F" flags manifest from this type of action. That is, the angle of incline decreases, but it keeps going higher until eventually, it breaks. Something like this...
Barring any surprise rebound in inflation, the descending trend is likely to continue in yields, although they have gotten way ahead of the Fed Funds Rate already. There has been a rebound off the lows on the 10-year Treasury Yield, and maybe that is some kind of bull flag, but for now, it looks like the old broken support line of the red trading channel is acting as resistance.
This has given bonds (F-fund) a boost and, until yesterday's rally in stocks, the F-fund was the leading TSP fund in August.
We are entering the weakest seasonal period of the year. We've talked about August being an historically weaker month for stocks, except during election years, but September's seasonality record is not good, election year or not.
The Weekly Jobless Claims on Thursday and the Jackson Hole Symposium on Friday are this week's headliners, so the quiet calendar might favor the bulls until the bears are brave enough to make another move.
The S&P 500 (C-fund) continues to melt-up on unenthusiastic trading volume. That's not a deal breaker as it could mean a lot of folks are out there still waiting to buy. Of course the other possibility is that institutional buyers are not on board with this rally. A double top pullback is a possibility if it can fill that open gap near 5660, or we have a good environment for an "F" flag to develop, as I talked about up top.
One misconception I have had is that we did not see a high trading volume capitulation at the lows in the S&P 500. Well, check out the SPY - which is the S&P 500 ETF chart. That's what I was talking about, and I never saw it. That would have been good information back then.
The DWCPF (S-fund) led the large caps yesterday and it still has a lot of room to run if it is going to catch up to its July highs. Not that it has to, but perhaps a retracement of that August 2nd candlestick is next? That's only a little more than 1% away.
The EFA (I-fund) led yesterday as the dollar continues to bleed lower. The weaker the dollar gets, the more inflation becomes a concern. That's probably not I-fund related, but it just dawned on me.
BND (F-fund) was up again yesterday as the rally in bonds looks to still have some steam. The jobless claims or the Fed on Friday could change that, but for now, the F-fund is in play.
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
Questions, comments, or issues with today's commentary? We can discuss it in the Forum.
Daily Market Commentary Archives
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.
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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OK, let's get the most important development out of the way (sarcasm.) The S&P 500 closed at 5608 yesterday, breaking the odd streak of six straight days where the closing price contained only 3's, 4's and 5's. See prior commentaries if you don't know what I'm talking about, or ignore it because it's not really that important.
What is important is just how strong the market has become after a death spiral sell off just a couple of weeks ago. I don't think much has changed since then, but the downside was so exaggerated on news that probably didn't warrant a precipitous decline, but it was a 10% shake out, and now people are scrambling to get back in. The fact that the rebound has been on light volume could mean that there is still plenty of bears out there that still need to try to catch up.
As our TSP Talk Plus subscribers know, I was partial victim of that decline / quick rebound by selling some of my stock fund holdings early in the rebound, expecting a the rally to fail, so I am not making everything I could be, but I am making something. Now the question for the underinvested is whether to chase the rally, or be patient and wait for another pullback, or at least a better setup. There's no correct answer until after the fact - but of course an educated guess is usually better than hope.
Anything is possible, and I have been doing this long enough to have seen almost every type of outcome, but rebounds of this magnitude rarely just fail and come right back down, but again possible and be careful - we do have a full moon out there so...
But a dip or consolidation is likely at some point soon. Testing the prior highs is also quite likely as we get closer but we also tend to see "F" flags manifest from this type of action. That is, the angle of incline decreases, but it keeps going higher until eventually, it breaks. Something like this...
Barring any surprise rebound in inflation, the descending trend is likely to continue in yields, although they have gotten way ahead of the Fed Funds Rate already. There has been a rebound off the lows on the 10-year Treasury Yield, and maybe that is some kind of bull flag, but for now, it looks like the old broken support line of the red trading channel is acting as resistance.
This has given bonds (F-fund) a boost and, until yesterday's rally in stocks, the F-fund was the leading TSP fund in August.
We are entering the weakest seasonal period of the year. We've talked about August being an historically weaker month for stocks, except during election years, but September's seasonality record is not good, election year or not.
The Weekly Jobless Claims on Thursday and the Jackson Hole Symposium on Friday are this week's headliners, so the quiet calendar might favor the bulls until the bears are brave enough to make another move.
The S&P 500 (C-fund) continues to melt-up on unenthusiastic trading volume. That's not a deal breaker as it could mean a lot of folks are out there still waiting to buy. Of course the other possibility is that institutional buyers are not on board with this rally. A double top pullback is a possibility if it can fill that open gap near 5660, or we have a good environment for an "F" flag to develop, as I talked about up top.
One misconception I have had is that we did not see a high trading volume capitulation at the lows in the S&P 500. Well, check out the SPY - which is the S&P 500 ETF chart. That's what I was talking about, and I never saw it. That would have been good information back then.
The DWCPF (S-fund) led the large caps yesterday and it still has a lot of room to run if it is going to catch up to its July highs. Not that it has to, but perhaps a retracement of that August 2nd candlestick is next? That's only a little more than 1% away.
The EFA (I-fund) led yesterday as the dollar continues to bleed lower. The weaker the dollar gets, the more inflation becomes a concern. That's probably not I-fund related, but it just dawned on me.
BND (F-fund) was up again yesterday as the rally in bonds looks to still have some steam. The jobless claims or the Fed on Friday could change that, but for now, the F-fund is in play.
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
Questions, comments, or issues with today's commentary? We can discuss it in the Forum.
Daily Market Commentary Archives
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.
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.
