Stocks started out on the sluggish side on Monday morning before investors started to buy again, giving us a clue that the selling side may have been exhausted for a bit - well at least for a couple of days because the S&P is already about 7% off last Monday's low. The Dow lagged percentage wise with its 406-point gain, while the Nasdaq and small caps exploded with gains over 3%. The I-fund also rebounded and had the help of a big decline in the dollar as well.
[TABLE="align: center"]
[TR]
[TD="align: center"]
[/TD]
[TD]
[/TD]
[TD="width: 338, align: center"] Daily TSP Funds Return
[TABLE="align: center"]
[TR]
[TD="align: right"][/TD]
[/TR]
[/TABLE]
[/TD]
[/TR]
[/TABLE]
The S&P 500 (C-fund) is now about 7% above last Monday's lows. It's back above the 200-day EMA. It broke a descending resistance line on Friday. There's a lot of reasons to believe that a low is in, but we've seen relief rallies fail before. It's not uncommon. The 20-day EMA is being tested now, and the 50-day EMA is about 70-points above yesterday's close. That is a bull market tester. It's hard to say what happens next before seeing how the index reacts to those resistance areas.
The DWCPF (small caps / S-fund) had a monster day and we've always said that the best rallies tend to come during bear markets - or after extreme declines. You can see all of the resistance that is just overhead here, and to repeat myself, it's tough to say what happens next until we see how the charts react to those resistance areas.
The EFA (I-fund) rallied and got a boost from the 0.7% decline in the dollar yesterday. Plus the loss that the TSP gave the I-fund on Friday, despite the late rally in the U.S. market, should have been taken into consideration today, but the +1.85% gain that the TSP gave it sounds a little low to me.
BND (Bonds / F-fund) was down slightly and unless you are looking for a small bounce, there's nothing to see here. Only a decline in the economy could save this one, and I guess that is a possibility if the Fed slams on the breaks as much as they have proposed.
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 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.
[TABLE="align: center"]
[TR]
[TD="align: center"]
[TD]
[/TD]
[TD="width: 338, align: center"] Daily TSP Funds Return
[TR]
[TD="align: right"][/TD]
[/TR]
[/TABLE]
[/TD]
[/TR]
[/TABLE]
One question I was hearing today was whether or not the stock market has already priced in, not 5, but 7 potential 0.25% interest rate hikes in the next 18 months? Not likely. It may have only priced in 4. As we've talked about, a 1% raise in interest rates can usually impact a company's bottom like by 10% or more, and we've gotten a 12% pullback in the S&P from the recent peak to last week's low already. And small caps were down 20%.
I have such a mixed message / opinion right now, and this is what often happens when the stock market pulls back enough to turn my general market approach "indicator" from a bull market to a bear market perspective. That indicator right now is sitting on the fence between the two which makes it a very tough call on whether to buy this decline as if it is a great opportunity, or to sell the relief rally because that's what you do in a bear market. Where the S&P 500 closes this week will give my system signal a hard answer to that question - bull or bear market, while my mind tries to process that and determine whether I believe that signal or not.
Tom Lee of Fundstrat was on CNBC yesterday and he has been very accurate in predictions over the last couple of years, but so has most of the perma-bulls. He's calling the V bottom in the market a V for a Violent rally in February. On December 27 he did call for a 10% correction in 2022, which ... bingo, happened right away, so is that it? He says, yes.
These next two charts are the S&P 500 from 208 and 2016, both which started a new year in a similar fashion to what we're seeing in 2022.
2008 started with nasty sell off into mid-January, followed by a V bottom relief rally which took it into February. It peaked on the first trading day in February and eventually came all the way down to test the lows before bottoming. There was a big rally off of that low but 2008 turned out to be an awful year for stocks.
2016 was almost a carbon copy of that. A disaster start to January that put in a mid-month V bottom that once again rallied into the first trading day in February before flipping over and testing the lows again.
It looks like today and Wednesday may be very telling based on those charts. Another peak for the relief rally, or is the V bottom in?
Here the current chart. We got everything except the V bottom. This current low does more like the successful test of the low made in March of 2008. So perhaps there is no "V" bottom to retest again? But in both cases above, there was a new low, or test of the old low, in February or March. January was not "the" low.
The dollar took a dive on Monday and honestly I don't fully understand why this moves the way it does. The only thing that makes sense to me is that the open gap got filled. Why it would go higher from here, I don't know except for the Fed's actions to tighten their monetary policy. But the Fed has printed and given away nearly 100 trillion in bailout dollars since the financial crash, yet the dollar is about 10% higher in value than it was during the financial crisis. I don't get it. Why isn't it losing value?
The weakness in the dollar did help prices of commodities and the I-fund yesterday.
We'll get earnings from Amazon, Google, and Facebook this week, and we also get the January jobs report on Friday. Estimates are looking for 180,000 jobs being added, and an unemployment rate of 3.9%. Hourly wages are expected to rise by 0.5%.
I have such a mixed message / opinion right now, and this is what often happens when the stock market pulls back enough to turn my general market approach "indicator" from a bull market to a bear market perspective. That indicator right now is sitting on the fence between the two which makes it a very tough call on whether to buy this decline as if it is a great opportunity, or to sell the relief rally because that's what you do in a bear market. Where the S&P 500 closes this week will give my system signal a hard answer to that question - bull or bear market, while my mind tries to process that and determine whether I believe that signal or not.
Tom Lee of Fundstrat was on CNBC yesterday and he has been very accurate in predictions over the last couple of years, but so has most of the perma-bulls. He's calling the V bottom in the market a V for a Violent rally in February. On December 27 he did call for a 10% correction in 2022, which ... bingo, happened right away, so is that it? He says, yes.
These next two charts are the S&P 500 from 208 and 2016, both which started a new year in a similar fashion to what we're seeing in 2022.
2008 started with nasty sell off into mid-January, followed by a V bottom relief rally which took it into February. It peaked on the first trading day in February and eventually came all the way down to test the lows before bottoming. There was a big rally off of that low but 2008 turned out to be an awful year for stocks.
2016 was almost a carbon copy of that. A disaster start to January that put in a mid-month V bottom that once again rallied into the first trading day in February before flipping over and testing the lows again.
It looks like today and Wednesday may be very telling based on those charts. Another peak for the relief rally, or is the V bottom in?
Here the current chart. We got everything except the V bottom. This current low does more like the successful test of the low made in March of 2008. So perhaps there is no "V" bottom to retest again? But in both cases above, there was a new low, or test of the old low, in February or March. January was not "the" low.
The dollar took a dive on Monday and honestly I don't fully understand why this moves the way it does. The only thing that makes sense to me is that the open gap got filled. Why it would go higher from here, I don't know except for the Fed's actions to tighten their monetary policy. But the Fed has printed and given away nearly 100 trillion in bailout dollars since the financial crash, yet the dollar is about 10% higher in value than it was during the financial crisis. I don't get it. Why isn't it losing value?
The weakness in the dollar did help prices of commodities and the I-fund yesterday.
We'll get earnings from Amazon, Google, and Facebook this week, and we also get the January jobs report on Friday. Estimates are looking for 180,000 jobs being added, and an unemployment rate of 3.9%. Hourly wages are expected to rise by 0.5%.
The S&P 500 (C-fund) is now about 7% above last Monday's lows. It's back above the 200-day EMA. It broke a descending resistance line on Friday. There's a lot of reasons to believe that a low is in, but we've seen relief rallies fail before. It's not uncommon. The 20-day EMA is being tested now, and the 50-day EMA is about 70-points above yesterday's close. That is a bull market tester. It's hard to say what happens next before seeing how the index reacts to those resistance areas.
The DWCPF (small caps / S-fund) had a monster day and we've always said that the best rallies tend to come during bear markets - or after extreme declines. You can see all of the resistance that is just overhead here, and to repeat myself, it's tough to say what happens next until we see how the charts react to those resistance areas.
The EFA (I-fund) rallied and got a boost from the 0.7% decline in the dollar yesterday. Plus the loss that the TSP gave the I-fund on Friday, despite the late rally in the U.S. market, should have been taken into consideration today, but the +1.85% gain that the TSP gave it sounds a little low to me.
BND (Bonds / F-fund) was down slightly and unless you are looking for a small bounce, there's nothing to see here. Only a decline in the economy could save this one, and I guess that is a possibility if the Fed slams on the breaks as much as they have proposed.
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 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.
