Stocks sold off on Tuesday after those telling Monday negative reversals. The losses were steep but there was some late buying, although even with that late push most of the major indices were down 1% or more. Bonds were up on a big drop in yields following a weaker than expected manufacturing number. Lower yields however, did not save the small caps this time. The I-fund did sidestep a lot of the decline in US stocks.
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It's nice when the technicals come together - a sell off after a negative reversal day is normal action, but another one of the numerous TSP limitations that we deal with, in this case the noon ET deadline, did not allow us to react to Monday's late sell off and negative reversal day, so we couldn't have avoided it -- based on the reversal, anyway.
The pundits were blaming the decline on the losses in Apple, but the market may have been looking for any excuse to do some backing and filling, and yesterday may have been the start - and Monday's negative reversal was the first clue. We knew how stretched some of the indices were and how bullish investors had gotten so raising cash along the way up would have helped if this is indeed the start of something more severer. But then again with momentum as strong as it has been, trading solely on overbought or overly bullish conditions would have had anyone selling way too early. If not for the good looking charts of the S and I funds, I may have been all in the G-fund a long time ago, but thankfully I wasn't.
While this could be some kind of peak forming, I don't think we have enough information to suggest that at this point, although the chart of the Dow Transports that I post down below, may be hinting something about a peak. There have been a few shake out days like yesterday that were less warning signs, than buying opportunities. I'm not opposed to selling poor action, or even trying to pick a top, but so far there has been no real damage made to the charts - except maybe in yields.
The 10-year Treasury Yield did not hold at the 50-day EMA yesterday. Instead it gapped below the average and actually ran all the way down to test - and hold - at the 200-day EMA. Sometimes the first test of a major moving average will hold (see arrows below) before breaking through in the following days, so while the successful test of the 200-day EMA looks good, it could just be a resting point.
BND (Bonds / F-fund) is acting as if it thinks yield may go lower as it made another move above its blue bull flag, and it may be on its way to try to fill the open gap by 73.20.
The Dow Transportation Index is creating an interesting chart pattern. We have a head and shoulders pattern (red) that is following a prior head and shoulders pattern (blue). What those could be are smaller head and shoulders making up a much larger H&S (green.) It would take a while - probably months - for a right shoulder to form, but down the road this could be creating a major topping formation. That would not be good news since the Transports tend to lead the rest of the market. Like I said, it would take a while to form and it could actually move all the way up by 16,200 while creating a right shoulder.
Did I hear something about this being one of the Nasty 7 worst weeks of the year? There are three days left in the week and Jerome Powell testifies in front of congress today, and on Friday we'll get the jobs report, so there is time for the week to redeem itself, but so far so good on that nasty 7 warning, whether it was official, or not.
We talked about bitcoin hitting a long term double top yesterday and that it may be due for a pullback. Yesterday it hit a high of $69,245 and then fell all the way to $59,269 before settling near $63,2000 at the time of this writing, so there was a combination of profit taking at the double top, and some dip buying below 60K. The new ETF's are creating more demand and since mining bitcoin is a slow process, the lack of supply for the new demand may keep a bid under bitcoin for a while.
The S&P 500 (C-fund) gapped lower on Tuesday and there is now a small open gap overhead. The 20-day EMA has been holding as support for months, but there is still that major open gap down below 5000 that could also come into play - it depends if the 20-day EMA holds. We've seen a few of these one day declines that were quickly bought up, so while I'm concerned that we are due for a meaningful pullback, recent history suggests that we shouldn't be surprise if this one bounces back just as fast.
DWCPF (S-fund) also gaped down and that pulled it back below the breakout line it pushed above last week. There are some clear pullback targets and the question will be how firm those support levels will be.
The EFA (I-fund) was down just slightly yesterday, outperforming the US indices. The dollar was down slightly, but there seemed to be more to it than that. That 77.50 area was trying to hold as support but if that breaks this week, 77.00 and 76.50 look like potential targets for any further pullback. It's a good looking chart and a modest pullback would not hurt that.
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.
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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It's nice when the technicals come together - a sell off after a negative reversal day is normal action, but another one of the numerous TSP limitations that we deal with, in this case the noon ET deadline, did not allow us to react to Monday's late sell off and negative reversal day, so we couldn't have avoided it -- based on the reversal, anyway.
The pundits were blaming the decline on the losses in Apple, but the market may have been looking for any excuse to do some backing and filling, and yesterday may have been the start - and Monday's negative reversal was the first clue. We knew how stretched some of the indices were and how bullish investors had gotten so raising cash along the way up would have helped if this is indeed the start of something more severer. But then again with momentum as strong as it has been, trading solely on overbought or overly bullish conditions would have had anyone selling way too early. If not for the good looking charts of the S and I funds, I may have been all in the G-fund a long time ago, but thankfully I wasn't.
While this could be some kind of peak forming, I don't think we have enough information to suggest that at this point, although the chart of the Dow Transports that I post down below, may be hinting something about a peak. There have been a few shake out days like yesterday that were less warning signs, than buying opportunities. I'm not opposed to selling poor action, or even trying to pick a top, but so far there has been no real damage made to the charts - except maybe in yields.
The 10-year Treasury Yield did not hold at the 50-day EMA yesterday. Instead it gapped below the average and actually ran all the way down to test - and hold - at the 200-day EMA. Sometimes the first test of a major moving average will hold (see arrows below) before breaking through in the following days, so while the successful test of the 200-day EMA looks good, it could just be a resting point.
BND (Bonds / F-fund) is acting as if it thinks yield may go lower as it made another move above its blue bull flag, and it may be on its way to try to fill the open gap by 73.20.
The Dow Transportation Index is creating an interesting chart pattern. We have a head and shoulders pattern (red) that is following a prior head and shoulders pattern (blue). What those could be are smaller head and shoulders making up a much larger H&S (green.) It would take a while - probably months - for a right shoulder to form, but down the road this could be creating a major topping formation. That would not be good news since the Transports tend to lead the rest of the market. Like I said, it would take a while to form and it could actually move all the way up by 16,200 while creating a right shoulder.
Did I hear something about this being one of the Nasty 7 worst weeks of the year? There are three days left in the week and Jerome Powell testifies in front of congress today, and on Friday we'll get the jobs report, so there is time for the week to redeem itself, but so far so good on that nasty 7 warning, whether it was official, or not.
We talked about bitcoin hitting a long term double top yesterday and that it may be due for a pullback. Yesterday it hit a high of $69,245 and then fell all the way to $59,269 before settling near $63,2000 at the time of this writing, so there was a combination of profit taking at the double top, and some dip buying below 60K. The new ETF's are creating more demand and since mining bitcoin is a slow process, the lack of supply for the new demand may keep a bid under bitcoin for a while.
The S&P 500 (C-fund) gapped lower on Tuesday and there is now a small open gap overhead. The 20-day EMA has been holding as support for months, but there is still that major open gap down below 5000 that could also come into play - it depends if the 20-day EMA holds. We've seen a few of these one day declines that were quickly bought up, so while I'm concerned that we are due for a meaningful pullback, recent history suggests that we shouldn't be surprise if this one bounces back just as fast.
DWCPF (S-fund) also gaped down and that pulled it back below the breakout line it pushed above last week. There are some clear pullback targets and the question will be how firm those support levels will be.
The EFA (I-fund) was down just slightly yesterday, outperforming the US indices. The dollar was down slightly, but there seemed to be more to it than that. That 77.50 area was trying to hold as support but if that breaks this week, 77.00 and 76.50 look like potential targets for any further pullback. It's a good looking chart and a modest pullback would not hurt that.
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.
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.
