Things got interesting in this holiday shortened week. Small caps showed signs of cracking for several days, but yesterday we saw the S&P 500 show fatigue for the first time in a while after its big run to new highs. After making an all time high on Wednesday, the bears finally sunk their teeth into some selling, but even then the bulls did some dip buying at the opening lows to push the index higher into the close. The Dow lost 260-points, about half of the morning losses. Yields, down again. The dollar also flipped over to pull back from its recent highs.
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There has been some talk of potential new shutdowns because of the Delta variant of COVID, and I don't know if that is what caused yesterdays selling, but we have certainly seen a lot of evidence that economic growth may be more of a concern than we thought, and of course my recent obsession with falling yields has been one of the key clues.
I'm a little skeptical that the people would go along with another shutdown, but we know there are some state governments that are more stringent with these kind of rules, so is this why we've seen deterioration in many of the charts despite the recent new highs in the three major indices; Dow, S&P 500, and Nasdaq?
Perhaps, but we can also see an end to, or at least a slowing down of, stimulus now that the economy has shown signs of life, but what happens to the economy when this life support is taken away? Will we see 6% to 7% stimulus triggered growth, turn back into a more typical 2% to 3% growth, and if so, maybe this is how the market adjusts. Just thinking out loud.
We've been seeing bear flags on many charts recently, and in general, they portend to bad things happening. We've seen it on the Dow Transportation Index, which has already broken, we see it on the XLF financials ETF, which are getting hurt by falling yields, and...
... the on the EFA, which our I-fund tracks. After yesterday we've seen a double bear flag breakdown there along with a double bottom breakdown and the 50-day EMA giving way. I think the Delta variant is more of an issue overseas.
As of now however, the S&P 500 is basically on day one of a pullback, and because of the rotational action, there's no guarantee that it will go the way of the group above. But it could.
The S&P 500 (C-fund) gapped lower on Thursday, and although there is no physical open gap on the chart, there is a stealth gap between Wednesday's closing price of 4358 and Thursday's high of 4331, that could get filled on a short-term snap back rally, even if this sell off gets worse. The resistance is obvious. We all see it, traders, investors, anyone who views charts. So there was a reason to sell, but the resistance is rising and how long will dip buyers be able to sit on their hands? I'm not saying whether that means we should buy or not, but rather some mocking of those who do buy every dip without much thought about the consequences of the extremely stretched chart. But they've been right for a long time, so how can I argue with success?
The DWCPF (S-fund) lost another 1% yesterday but it closed well off the lows and back above the key 50-day EMA. The 50-EMA held in June but so far this pullback is a little bigger than the one in June, so it may not be as easy to get a "V" low.
The price of oil rebounded from some morning selling, so this bet on the economy showed some life despite the selling in the stock market. I would have to guess that if oil can continue higher, the rest of the market would be fine, but if oil does stumble, that weakness could spread elsewhere.
The price of the key commodities have been falling. Copper, and more so lumber, have come well off their May highs and this is another possible sign of economic uncertainty. Both charts have bear flags so perhaps the selling isn't done yet. More clues?
BND (bonds / F-fund) was up again as yields continued their decline. The fact that it broke above that 86.50 peak from February, but closed above it may be significant. If not, I'd look for this to move up to test the peak near 86.75.
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. Have a great weekend!
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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There has been some talk of potential new shutdowns because of the Delta variant of COVID, and I don't know if that is what caused yesterdays selling, but we have certainly seen a lot of evidence that economic growth may be more of a concern than we thought, and of course my recent obsession with falling yields has been one of the key clues.
I'm a little skeptical that the people would go along with another shutdown, but we know there are some state governments that are more stringent with these kind of rules, so is this why we've seen deterioration in many of the charts despite the recent new highs in the three major indices; Dow, S&P 500, and Nasdaq?
Perhaps, but we can also see an end to, or at least a slowing down of, stimulus now that the economy has shown signs of life, but what happens to the economy when this life support is taken away? Will we see 6% to 7% stimulus triggered growth, turn back into a more typical 2% to 3% growth, and if so, maybe this is how the market adjusts. Just thinking out loud.
We've been seeing bear flags on many charts recently, and in general, they portend to bad things happening. We've seen it on the Dow Transportation Index, which has already broken, we see it on the XLF financials ETF, which are getting hurt by falling yields, and...
... the on the EFA, which our I-fund tracks. After yesterday we've seen a double bear flag breakdown there along with a double bottom breakdown and the 50-day EMA giving way. I think the Delta variant is more of an issue overseas.
As of now however, the S&P 500 is basically on day one of a pullback, and because of the rotational action, there's no guarantee that it will go the way of the group above. But it could.
The S&P 500 (C-fund) gapped lower on Thursday, and although there is no physical open gap on the chart, there is a stealth gap between Wednesday's closing price of 4358 and Thursday's high of 4331, that could get filled on a short-term snap back rally, even if this sell off gets worse. The resistance is obvious. We all see it, traders, investors, anyone who views charts. So there was a reason to sell, but the resistance is rising and how long will dip buyers be able to sit on their hands? I'm not saying whether that means we should buy or not, but rather some mocking of those who do buy every dip without much thought about the consequences of the extremely stretched chart. But they've been right for a long time, so how can I argue with success?
The DWCPF (S-fund) lost another 1% yesterday but it closed well off the lows and back above the key 50-day EMA. The 50-EMA held in June but so far this pullback is a little bigger than the one in June, so it may not be as easy to get a "V" low.
The price of oil rebounded from some morning selling, so this bet on the economy showed some life despite the selling in the stock market. I would have to guess that if oil can continue higher, the rest of the market would be fine, but if oil does stumble, that weakness could spread elsewhere.
The price of the key commodities have been falling. Copper, and more so lumber, have come well off their May highs and this is another possible sign of economic uncertainty. Both charts have bear flags so perhaps the selling isn't done yet. More clues?
BND (bonds / F-fund) was up again as yields continued their decline. The fact that it broke above that 86.50 peak from February, but closed above it may be significant. If not, I'd look for this to move up to test the peak near 86.75.
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. Have a great weekend!
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.
