Stocks were mixed on Friday with the S&P 500 and Nasdaq posting their first gains of the week, although they both closed near their lows of the day making it less than impressive. It was a post holiday week so, as we were mostly anticipating, the pre-holiday week rally was reversed last week. This week has some seasonal tendencies as well, as we'll talk about below. Small caps and the I-fund were down on Friday, while bonds and the F-fund were up.
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OK, we're past the pre / post holiday, light volume trading environment and now we head into a higher volume, quadruple witching expiration week where stock options, index futures, and index futures options derivatives contracts all expire by close of business on Friday. There is actually a decent bullish bias this week but next week, the post options week in September, is one of the worst weeks of the year historically. Will it be? There's no guarantees that either of these things will play out as the tendencies suggest, but there it is.
With all eyes still focused on the status of inflation, the Fed's outlook and plan to deal with it, and the state of the economy based on the interest rate decisions, this week's CPI (Wed.) and PPI (Thur.) reports will be some of the more important economic data released this week.
The Federal Reserve Balance Sheet was reduced by another $20 billion last week, which is giving the dollar some strength, and putting pressure on stock prices. It's now down about $600 billion since the peak in March.
The Yield on the 10-year Treasury is trending higher and that has been putting some pressure on stocks over the summer. It made a lower high and lower low on Friday, perhaps triggering a new pullback, but it also closed near the highs of the day giving it a positive reversal look. Whichever of these channels, the blue or the red, is more dominant may determine the direction of this weeks move.
I've been keeping an eye on some market leaders and last week we saw Apple, the behemoth stock that impacts the Dow, S&P 500, and the Nasdaq, break down again after filling in the large gap left open after they reported earnings in August. After another big gap down on Thursday, there was a little relief to the upside on Friday as it tried to fill that open gap. It closed near the lows of day before filling that gap so we have two real possibilities this week - another push higher to get that overhead gap filled, or we could see that large gap from May pull it down further to continue to digest that big rally after their prior quarterly earnings report.
The Dow Transportation Index resumed its downside last week after the pre-holiday reversal rally. It was down every day last week and it is now getting a test from some potential support, whether temporary or not, in the 15,200 area. Like Apple, this market leader has been leading, but unfortunately for the bulls, it has been leading the market lower.
I literally captured this chart off of my TV as CNBC's Michael Santolli analyzed this 2-year trailing return data of the S&P 500. While we had the usual suspects of the 2000 dot com bubble bursting, the 2008 financial crisis, and the 2020 COVID crash that was an exception to this pattern, what this chart shows is that stocks tend to firm up and rebound after a 2-year stretch when the S&P 500 has been flat.
Source: CNBC
Looking back to Friday September 10, 2021 - two years ago, the S&P 500 closed at 4,459. On Friday it closed at 4,457.
Here's a chart of the 4-year presidential cycle and we are in year three, which has been the most consistently good year for the stock market over the years. The average return during year three is +17%, which is very close to where the S&P 500 is right now, +16.10%.
Source: https://www.pfgprivatewealth.com/spperformanceduringelectionyears/
The market may be in some trouble being in September, but after last week's pullback and this week's quadruple witching expiration week's positive bias, it may be a set up for the bulls to give the market some relief.
The S&P 500 (C-fund) faded on Friday, spoiling a decent looking morning rally. It closed below the 20-day EMA for a second straight day, but remains above the 50-day EMA and hasn't closed below that average since mid-August. There are two open gaps overhead - one near 4490 and a large one all the way up by 4570. That 4450 area seem to "sticky" as it has been trading above and below that since June. The chart actually did what we might expect based on the PMO indicator. If you recall, the crossover above its moving average that we saw in late August was a bullish intermediate-term sign, but it also tends to suggest a short-term overbought condition and a short-term pullback was not unexpected. Now the PMO is back on the moving average after the pullback manifested.
DWCPF (S-fund) seems to be filling in the right shoulder of that large head and shoulders pattern. Technically, this looks troublesome for the small caps as it may be looking to test the 200-day EMA again, and that is about where the neckline of the head and shoulders pattern is. Sometimes H&S patterns bounce off the neckline again as a continuation pattern, but that open gap all the way down near 1665 may look too inviting for the bear to ignore, if that neckline does get tested. There is also that open gap up near 1860 so is that an area that needs to get revisited before any breakdown?
The EFA (I-fund) has been getting punished by the strength in the dollar and this week it looks like it will be a big test of that confluence of support in the 70 area. This looks very vulnerable if it can't hold 70.
BND (Bonds / F-fund) has also been looking bad as yields continue to trend higher. This chart also has a lot of support in the area and we may be testing that support this week.
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.
Like what you're seeing on TSP Talk? Why not Tell a Friend about us? We'd really appreciate it, and they may too.
Thanks!
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, we're past the pre / post holiday, light volume trading environment and now we head into a higher volume, quadruple witching expiration week where stock options, index futures, and index futures options derivatives contracts all expire by close of business on Friday. There is actually a decent bullish bias this week but next week, the post options week in September, is one of the worst weeks of the year historically. Will it be? There's no guarantees that either of these things will play out as the tendencies suggest, but there it is.
With all eyes still focused on the status of inflation, the Fed's outlook and plan to deal with it, and the state of the economy based on the interest rate decisions, this week's CPI (Wed.) and PPI (Thur.) reports will be some of the more important economic data released this week.
The Federal Reserve Balance Sheet was reduced by another $20 billion last week, which is giving the dollar some strength, and putting pressure on stock prices. It's now down about $600 billion since the peak in March.
The Yield on the 10-year Treasury is trending higher and that has been putting some pressure on stocks over the summer. It made a lower high and lower low on Friday, perhaps triggering a new pullback, but it also closed near the highs of the day giving it a positive reversal look. Whichever of these channels, the blue or the red, is more dominant may determine the direction of this weeks move.
I've been keeping an eye on some market leaders and last week we saw Apple, the behemoth stock that impacts the Dow, S&P 500, and the Nasdaq, break down again after filling in the large gap left open after they reported earnings in August. After another big gap down on Thursday, there was a little relief to the upside on Friday as it tried to fill that open gap. It closed near the lows of day before filling that gap so we have two real possibilities this week - another push higher to get that overhead gap filled, or we could see that large gap from May pull it down further to continue to digest that big rally after their prior quarterly earnings report.
The Dow Transportation Index resumed its downside last week after the pre-holiday reversal rally. It was down every day last week and it is now getting a test from some potential support, whether temporary or not, in the 15,200 area. Like Apple, this market leader has been leading, but unfortunately for the bulls, it has been leading the market lower.
I literally captured this chart off of my TV as CNBC's Michael Santolli analyzed this 2-year trailing return data of the S&P 500. While we had the usual suspects of the 2000 dot com bubble bursting, the 2008 financial crisis, and the 2020 COVID crash that was an exception to this pattern, what this chart shows is that stocks tend to firm up and rebound after a 2-year stretch when the S&P 500 has been flat.
Source: CNBC
Looking back to Friday September 10, 2021 - two years ago, the S&P 500 closed at 4,459. On Friday it closed at 4,457.
Here's a chart of the 4-year presidential cycle and we are in year three, which has been the most consistently good year for the stock market over the years. The average return during year three is +17%, which is very close to where the S&P 500 is right now, +16.10%.
Source: https://www.pfgprivatewealth.com/spperformanceduringelectionyears/
The market may be in some trouble being in September, but after last week's pullback and this week's quadruple witching expiration week's positive bias, it may be a set up for the bulls to give the market some relief.
The S&P 500 (C-fund) faded on Friday, spoiling a decent looking morning rally. It closed below the 20-day EMA for a second straight day, but remains above the 50-day EMA and hasn't closed below that average since mid-August. There are two open gaps overhead - one near 4490 and a large one all the way up by 4570. That 4450 area seem to "sticky" as it has been trading above and below that since June. The chart actually did what we might expect based on the PMO indicator. If you recall, the crossover above its moving average that we saw in late August was a bullish intermediate-term sign, but it also tends to suggest a short-term overbought condition and a short-term pullback was not unexpected. Now the PMO is back on the moving average after the pullback manifested.
DWCPF (S-fund) seems to be filling in the right shoulder of that large head and shoulders pattern. Technically, this looks troublesome for the small caps as it may be looking to test the 200-day EMA again, and that is about where the neckline of the head and shoulders pattern is. Sometimes H&S patterns bounce off the neckline again as a continuation pattern, but that open gap all the way down near 1665 may look too inviting for the bear to ignore, if that neckline does get tested. There is also that open gap up near 1860 so is that an area that needs to get revisited before any breakdown?
The EFA (I-fund) has been getting punished by the strength in the dollar and this week it looks like it will be a big test of that confluence of support in the 70 area. This looks very vulnerable if it can't hold 70.
BND (Bonds / F-fund) has also been looking bad as yields continue to trend higher. This chart also has a lot of support in the area and we may be testing that support this week.
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.
Like what you're seeing on TSP Talk? Why not Tell a Friend about us? We'd really appreciate it, and they may too.
Thanks!
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.
