It was quite a volatile week for the stock market last week despite most of the news being non-market related. We came into the week after an assassination attempt on a former president and current presidential candidate. We also had ongoing rumors, which are no longer rumors, that the incumbent president was contemplating dropping out of the 2024 race (and since has.) And if that wasn't enough there was a faulty update from Crowdstrike that took down millions of PCs and related technology that disrupted businesses and governments around the world including banks, airports, hospitals, etc.
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Only the small caps (S-fund) managed to hold onto some of last week's big early gains, adding a modest 0.29%, while the C and I-funds lost 1.95% and 2.49% respectively. Even bonds had a 0.33% loss, so it was a tough week for the TSP funds.
I was doing some end zone celebration dancing early last week after my TSP Talk Plus System's 2024 return was up nearly 20% for the year, before the market took a big chunk of that back in the second half of the week. I have been doing this a long time and I should know that celebrating or bragging is one way to end a good run. Note to self: Stay humble.
This chart of the Russell 2000 small caps index shows the recent reaction to the better than expected inflation data. It's a 4-year chart so you can barely see last week's 3-day pullback but the rally did stall at an area that was resistance back in 2021. The breakout in late 2021 turned out to be a major fake out, and we see an eerily similar breakout spike that is struggling to hold, and will need some help to hold on this week. You can see in late 2020 how massive the rallies in small caps can be when they're working.
The difference between the two spikes noted in the top chart may be that the 10-year yield was on its way up at the end of 2021 and into 2022, and now it appears to have peaked and is heading lower.
As for the C-fund, big tech has been the catalyst here and the last week or so that catalyst was faltering. This chart of Nvidia could be key this week for the large caps of the S&P and Nasdaq as the 50-day EMA has been tested and trying to hold, and if it can hold, the bull flag suggests it could go higher and the tech rally might resume. However, if 115 and 110 can't hold, it could be the end of the tech rally and that would likely take the C-fund, if not all the stock funds, down with it.
The strong start to the stock market last week was interrupted by a positive reversal in yields and the dollar. Both have some room on the upside and that could put more pressure on stocks, but if they can stabilize near those key moving averages, stocks may have a better chance to resume the rally.
We mentioned the typical hiccup period for stocks in mid to late July, but that the seasonality chart gets better again toward the end of the month. That goes for election years as well. You can see that very small red box in July that we were just dealing with on this election year seasonality chart, but boy does this chart get better once that hiccup is out of the way. August is normally one of the worst months for stocks historically, but not during election years.
Chart source: seasonax
The ramifications of the Crowdstrike debacle are still unknown, but businesses, particularly small businesses, were certainly disrupted.
President Biden has now officially dropped out of the presidential race. What that does to the race, I don't know. Trump had taken a big lead in the polls, but now it's time for the democratic convention where they will look to take back some momentum. How the stock market reacts, I also don't know, but it may make some adjustments with Biden out. The Sunday evening S&P 500 futures opened higher, if that tells us anything. I did watch bitcoin trade on Sunday and it dropped quite a bit right after the news, but quickly recovered. So the reaction in stocks may be more emotional, but may not last long.
Microsoft, Alphabet (aka Google), and Tesla will report earnings after the bell on Tuesday the 23rd to kick off the Magnificent 7 earnings season. Next week Meta, Apple, and Amazon will report. Nvidia doesn't report until the end of August.
On Friday we get the June PCE Prices report which is a key Fed inflation indicator. Both are expected to tick up from the May report.
PCE Prices For June: Briefing.com Consensus: 0.1% | Prior: 0.0%
Core PCE Prices For June: Briefing.com Consensus: 0.2% | Prior: 0.1%
The S&P 500 (C-fund) pulled back for a 3rd straight day on Friday and so far it has been contained within the ascending trading channel. The 50-day EMA and the open gap below may be a potential downside target if the channel can't hold. We could have an emotional start to the trading day that could shake up the chart, but as of right now, this looks fine, although it needs some quick help.
The DWCPF (S-fund) was also down for the 3rd straight day but it was coming off a parabolic move higher, and the losses on Friday were muted compared to the other TSP stock funds. There's support near Friday's lows but this chart also has some imposing open gaps below that could make the bulls nervous.
The EFA (I-fund) had to deal with a sharp rally in the dollar at the end of last week and that downside action pushed it back below its 20-day EMA. There's an open gap below, but the inverted head and shoulders pattern is intact and could be nearing a pullback low if the 50-day EMA can hold.
BND (bonds / F-fund) got hit on Friday as that looming open gap remains open and always a potential target. There is plenty of room on the downside of this if this wants to test the bottom of that blue trading channel again, but the longer-term trend is still up.
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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[TD="width: 311, align: center"] Daily TSP Funds Return
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Only the small caps (S-fund) managed to hold onto some of last week's big early gains, adding a modest 0.29%, while the C and I-funds lost 1.95% and 2.49% respectively. Even bonds had a 0.33% loss, so it was a tough week for the TSP funds.
I was doing some end zone celebration dancing early last week after my TSP Talk Plus System's 2024 return was up nearly 20% for the year, before the market took a big chunk of that back in the second half of the week. I have been doing this a long time and I should know that celebrating or bragging is one way to end a good run. Note to self: Stay humble.
This chart of the Russell 2000 small caps index shows the recent reaction to the better than expected inflation data. It's a 4-year chart so you can barely see last week's 3-day pullback but the rally did stall at an area that was resistance back in 2021. The breakout in late 2021 turned out to be a major fake out, and we see an eerily similar breakout spike that is struggling to hold, and will need some help to hold on this week. You can see in late 2020 how massive the rallies in small caps can be when they're working.
The difference between the two spikes noted in the top chart may be that the 10-year yield was on its way up at the end of 2021 and into 2022, and now it appears to have peaked and is heading lower.
As for the C-fund, big tech has been the catalyst here and the last week or so that catalyst was faltering. This chart of Nvidia could be key this week for the large caps of the S&P and Nasdaq as the 50-day EMA has been tested and trying to hold, and if it can hold, the bull flag suggests it could go higher and the tech rally might resume. However, if 115 and 110 can't hold, it could be the end of the tech rally and that would likely take the C-fund, if not all the stock funds, down with it.
The strong start to the stock market last week was interrupted by a positive reversal in yields and the dollar. Both have some room on the upside and that could put more pressure on stocks, but if they can stabilize near those key moving averages, stocks may have a better chance to resume the rally.
We mentioned the typical hiccup period for stocks in mid to late July, but that the seasonality chart gets better again toward the end of the month. That goes for election years as well. You can see that very small red box in July that we were just dealing with on this election year seasonality chart, but boy does this chart get better once that hiccup is out of the way. August is normally one of the worst months for stocks historically, but not during election years.
Chart source: seasonax
The ramifications of the Crowdstrike debacle are still unknown, but businesses, particularly small businesses, were certainly disrupted.
President Biden has now officially dropped out of the presidential race. What that does to the race, I don't know. Trump had taken a big lead in the polls, but now it's time for the democratic convention where they will look to take back some momentum. How the stock market reacts, I also don't know, but it may make some adjustments with Biden out. The Sunday evening S&P 500 futures opened higher, if that tells us anything. I did watch bitcoin trade on Sunday and it dropped quite a bit right after the news, but quickly recovered. So the reaction in stocks may be more emotional, but may not last long.
Microsoft, Alphabet (aka Google), and Tesla will report earnings after the bell on Tuesday the 23rd to kick off the Magnificent 7 earnings season. Next week Meta, Apple, and Amazon will report. Nvidia doesn't report until the end of August.
On Friday we get the June PCE Prices report which is a key Fed inflation indicator. Both are expected to tick up from the May report.
PCE Prices For June: Briefing.com Consensus: 0.1% | Prior: 0.0%
Core PCE Prices For June: Briefing.com Consensus: 0.2% | Prior: 0.1%
The S&P 500 (C-fund) pulled back for a 3rd straight day on Friday and so far it has been contained within the ascending trading channel. The 50-day EMA and the open gap below may be a potential downside target if the channel can't hold. We could have an emotional start to the trading day that could shake up the chart, but as of right now, this looks fine, although it needs some quick help.
The DWCPF (S-fund) was also down for the 3rd straight day but it was coming off a parabolic move higher, and the losses on Friday were muted compared to the other TSP stock funds. There's support near Friday's lows but this chart also has some imposing open gaps below that could make the bulls nervous.
The EFA (I-fund) had to deal with a sharp rally in the dollar at the end of last week and that downside action pushed it back below its 20-day EMA. There's an open gap below, but the inverted head and shoulders pattern is intact and could be nearing a pullback low if the 50-day EMA can hold.
BND (bonds / F-fund) got hit on Friday as that looming open gap remains open and always a potential target. There is plenty of room on the downside of this if this wants to test the bottom of that blue trading channel again, but the longer-term trend is still up.
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.
