The indices continued to retrace last week's big 2-day rally, and perhaps right on cue as we enter the pre-holiday reversal period, and the debt ceiling deadline quickly approaching closer. The Dow lost 231-points, but worse than that was the negative reversal in many indices as the small caps were on the verge of a breakout, but instead failed and rolled over. Yields also rolled over as bonds were up for the first time in 8 trading sessions.
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Being a major 3-day weekend, the action surrounding Memorial Day Weekend qualifies as one where we might expect a pre-holiday reversal away from the general trend. The trend has been up since the March lows but the more recent action has been rather choppy so I'm not sure what is considered the trend as far as holiday reversals go. Over the last 30 years we do see some favorable seasonality during the final trading days on May, starting today.
I posted the chart above before but here's a reminder that since 2012 only the 4th day before the holiday, which was yesterday, and the 4th day after the holiday, which is next week, show an average negative return. There are about three days of the nine with meaningful positive average returns One was Monday of this week, which did see some green, especially in small caps. Another is today. If this pattern continues today would give the bulls some advantage, but of course the market is dealing with the dreaded debt ceiling deadline.
The market had been basically shaking off that looming day, which Janet Yellen says is June 1st but yesterday the Russell 2000 hit a brick wall in the form of the top of an old open gap and the 200-day EMA, and completely reversed course from a morning rally. Was this a result of the impending debt ceiling deadline, a pre-holiday reversal, or just technical analysis doing what probably shouldn't be a surprise in the short-term?
The Transportation Index was also up early but flipped over by the close. It showed some relative strength by only losing 0.24% on the day and it is forming a bullish looking flag, but it remains buried below tough resistance between about 14,000 and 14,155.
Yields also reversed course breaking a 7 day streak of higher yields on the 10-year Treasury. I'm actually a little surprised that stocks had been holding up as well as they had with rising rates for those 7 straight days before yesterday. Raising the debt ceiling will mean issuing new bonds and so the bond market had been pricing this in for the last week or so. Does yesterday's reversal mean it is priced in, or did they just need a breather before resuming the rally? Remember, bonds and the F-fund move counter to yields.
The market sees the debt ceiling deadline coming but hadn't really reacted - until maybe yesterday, so did we finally see the bulls capitulate and give up on the idea that our leaders in Washington will get this done? We all have our opinions on whether they need to cut spending, raise taxes, or do both, but the bottom line is they know it has to get done and I believe they will take their rime, enjoy the spot light, and the media will enjoy the hype, for as long as they can before hopefully coming to an inevitable, amicable (ha!) deal.
The S&P 500 (C-fund) is doing its job of retracing those big positive candlesticks from last week, just as we talked about in Monday's commentary. We have seen it often this year, but since the March lows we've seen higher lows as opposed to those retracements leading to lower lows in February and early March. The rising support line is coming up quickly and will obviously be a key to this current trend, but here comes a possible pre-holiday reversal to mess with the trend.
From Monday's commentary:
The DWCPF (S-fund) was flirting with a breakout as it moved above the resistance line and nearly tagged the 200-day EMA before someone pulled the plug. It has closed above the 50-day EMA for a 4th straight day yesterday, and 3 to 5 days is considered a confirmation so today's close will be important in that respect.
The EFA (I-fund) got hit hard yesterday and fell through the 20-day EMA but technically it is still above the breakout levels. 72 and 71 will be key levels to hold. 71 is where it broke out back in late March. There's open gaps all over this chart with most down below, but now there's one above as well. The 50-day EMA hasn't been tested in a month and it is down at 72.28.
BND (Bonds / F-fund) bonds reversed from early weakness on Tuesday to close up for the first time in a while. Perhaps just in time as it was getting dangerously close to breaking below a long term rising support line. If you don't like stocks, maybe it's time for bonds over the G-fund?
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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Being a major 3-day weekend, the action surrounding Memorial Day Weekend qualifies as one where we might expect a pre-holiday reversal away from the general trend. The trend has been up since the March lows but the more recent action has been rather choppy so I'm not sure what is considered the trend as far as holiday reversals go. Over the last 30 years we do see some favorable seasonality during the final trading days on May, starting today.
I posted the chart above before but here's a reminder that since 2012 only the 4th day before the holiday, which was yesterday, and the 4th day after the holiday, which is next week, show an average negative return. There are about three days of the nine with meaningful positive average returns One was Monday of this week, which did see some green, especially in small caps. Another is today. If this pattern continues today would give the bulls some advantage, but of course the market is dealing with the dreaded debt ceiling deadline.
The market had been basically shaking off that looming day, which Janet Yellen says is June 1st but yesterday the Russell 2000 hit a brick wall in the form of the top of an old open gap and the 200-day EMA, and completely reversed course from a morning rally. Was this a result of the impending debt ceiling deadline, a pre-holiday reversal, or just technical analysis doing what probably shouldn't be a surprise in the short-term?
The Transportation Index was also up early but flipped over by the close. It showed some relative strength by only losing 0.24% on the day and it is forming a bullish looking flag, but it remains buried below tough resistance between about 14,000 and 14,155.
Yields also reversed course breaking a 7 day streak of higher yields on the 10-year Treasury. I'm actually a little surprised that stocks had been holding up as well as they had with rising rates for those 7 straight days before yesterday. Raising the debt ceiling will mean issuing new bonds and so the bond market had been pricing this in for the last week or so. Does yesterday's reversal mean it is priced in, or did they just need a breather before resuming the rally? Remember, bonds and the F-fund move counter to yields.
The market sees the debt ceiling deadline coming but hadn't really reacted - until maybe yesterday, so did we finally see the bulls capitulate and give up on the idea that our leaders in Washington will get this done? We all have our opinions on whether they need to cut spending, raise taxes, or do both, but the bottom line is they know it has to get done and I believe they will take their rime, enjoy the spot light, and the media will enjoy the hype, for as long as they can before hopefully coming to an inevitable, amicable (ha!) deal.
The S&P 500 (C-fund) is doing its job of retracing those big positive candlesticks from last week, just as we talked about in Monday's commentary. We have seen it often this year, but since the March lows we've seen higher lows as opposed to those retracements leading to lower lows in February and early March. The rising support line is coming up quickly and will obviously be a key to this current trend, but here comes a possible pre-holiday reversal to mess with the trend.
From Monday's commentary:
The DWCPF (S-fund) was flirting with a breakout as it moved above the resistance line and nearly tagged the 200-day EMA before someone pulled the plug. It has closed above the 50-day EMA for a 4th straight day yesterday, and 3 to 5 days is considered a confirmation so today's close will be important in that respect.
The EFA (I-fund) got hit hard yesterday and fell through the 20-day EMA but technically it is still above the breakout levels. 72 and 71 will be key levels to hold. 71 is where it broke out back in late March. There's open gaps all over this chart with most down below, but now there's one above as well. The 50-day EMA hasn't been tested in a month and it is down at 72.28.
BND (Bonds / F-fund) bonds reversed from early weakness on Tuesday to close up for the first time in a while. Perhaps just in time as it was getting dangerously close to breaking below a long term rising support line. If you don't like stocks, maybe it's time for bonds over the G-fund?
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.
