Stocks opened lower after a very negative overnight session in the futures market, but the dip buyers didn't take long to take control of the action, and by the close we saw very solid gains in most of the indices. The Russell 2000 was one of the lone negatives, but that wasn't enough to push the S-fund into negative territory for the day. A negative reversal in the dollar helped push prices higher. Bonds also rallied.
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The Nasdaq, particularly the Nasdaq 100 which is the largest of the Nasdaq tech companies, has been exploding for months now, and despite this being the year of the pandemic and crash of the economy, it is up over 30% for the year. Not off the lows - but 31% for 2020. We're starting to hear comparisons to the dot com tech bubble, which we all know did not end well, but that rally went on a lot longer than anyone thought it could, as trends seem to do.
Short sellers were destroyed back then, that is until the bubble finally bust, and that burst was certainly heard around the world. The Nasdaq 100 lost about 77% from top to bottom back then. So, we shouldn't underestimate the strength of a bubble, nor should we underestimate the devastation of its eventual demise.
Unlike the current rally, if you were active during the dot com bubble you probably remember that it wasn't just a couple big names rallying. It was many, many companies, that didn't even have any earnings, that were soaring everyday, so the comparison isn't even close yet. That was insane, and the question is whether we will repeat that kind of insanity 20 years after those lessons were learned?
We're getting warning signs but as I said, the broader market really isn't as overvalued as the large tech stocks, so maybe there is still room to run? In this current environment it's only a few stocks that are lifting the indices while the broader market is behaving more sanely.
Still, we see negative divergences like this one, which is just one example. The Advance / Decline issues of the NYSE has been falling over the last several weeks, despite stock indices at or near all time highs.
We talk more about these types of divergences in our TSP Talk Plus reports, but they're basically all saying the same thing. There's upside momentum, but fewer stocks are participating. The indices are making leaps forward, yet many indicators are heading downward. Those brave enough to hang in there could make a lot more money, but I think you need to be careful and not overly complacent because the market has a way of punishing greed -- eventually. For now, gains are being made in chunks, especially in that Nasdaq, and unfortunately we can't just invest in Nasdaq type stocks.
The S&P 500 (C-fund) closed higher on the day but it had to battle back from, not only a weak open, but we actually saw some sharp losses in the over night futures trading on Wednesday night. But this chart looks fine - as long as the trading channel remains intact. There is some support in the 3325 - 3320 area but below that is a lot of room so that chart is vulnerable to a decent drop if support breaks.
The DWCPF (S-fund) was up modestly as small caps lagged a bit yesterday, but managed a gain despite the small cap Russell 2000 index closing in negative territory. A couple of support lines seem to have helped hold it up yesterday. It's hard not to like this chart, but if that support breaks, it could move down quickly given how extended many of the indices are.
The dollar rallied early but fell back and lost 0.28% on the day, which is a pretty big move for the dollar. That came on the heals of the big rally on Wednesday. You can see that it hit the descending resistance line yesterday and dropped like a rock.
The EAFE (I-fund) was down but the decline in the dollar yesterday came after an early rally so the EFA may have to play catch up today - if the TSP didn't take that late decline in the dollar into consideration yet.
The Volatility Index did an about face after a morning rally, but it did close slightly higher and make a meaningful move above the resistance line of the descending channel, despite the rally in stocks. That's a bit of a red flag for the market.
The 10-year yield fell below the 50-day EMA and that could be important. There's a big open gap down near 0.575% and if it's heading down that low, the bond market may get another little rally.
BND (Bond ETF / F-fund) was up yesterday and if that open gap on the yield chart above gets filled, then we might see the open gap on BND get filled up near 89.3. It's early off the recent lows, but that could be a bear flag forming. A push back near 89 could negate that.
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
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.
[TABLE="align: center"]
[TR]
[TD="align: center"] Daily TSP Funds Return
[TR]
[TD="align: right"] [/TD]
[/TR]
[/TABLE]
[/TD]
[TD][/TD]
[TD="align: center"]
[/TR]
[/TABLE]
The Nasdaq, particularly the Nasdaq 100 which is the largest of the Nasdaq tech companies, has been exploding for months now, and despite this being the year of the pandemic and crash of the economy, it is up over 30% for the year. Not off the lows - but 31% for 2020. We're starting to hear comparisons to the dot com tech bubble, which we all know did not end well, but that rally went on a lot longer than anyone thought it could, as trends seem to do.
Short sellers were destroyed back then, that is until the bubble finally bust, and that burst was certainly heard around the world. The Nasdaq 100 lost about 77% from top to bottom back then. So, we shouldn't underestimate the strength of a bubble, nor should we underestimate the devastation of its eventual demise.
Unlike the current rally, if you were active during the dot com bubble you probably remember that it wasn't just a couple big names rallying. It was many, many companies, that didn't even have any earnings, that were soaring everyday, so the comparison isn't even close yet. That was insane, and the question is whether we will repeat that kind of insanity 20 years after those lessons were learned?
We're getting warning signs but as I said, the broader market really isn't as overvalued as the large tech stocks, so maybe there is still room to run? In this current environment it's only a few stocks that are lifting the indices while the broader market is behaving more sanely.
Still, we see negative divergences like this one, which is just one example. The Advance / Decline issues of the NYSE has been falling over the last several weeks, despite stock indices at or near all time highs.
We talk more about these types of divergences in our TSP Talk Plus reports, but they're basically all saying the same thing. There's upside momentum, but fewer stocks are participating. The indices are making leaps forward, yet many indicators are heading downward. Those brave enough to hang in there could make a lot more money, but I think you need to be careful and not overly complacent because the market has a way of punishing greed -- eventually. For now, gains are being made in chunks, especially in that Nasdaq, and unfortunately we can't just invest in Nasdaq type stocks.
The S&P 500 (C-fund) closed higher on the day but it had to battle back from, not only a weak open, but we actually saw some sharp losses in the over night futures trading on Wednesday night. But this chart looks fine - as long as the trading channel remains intact. There is some support in the 3325 - 3320 area but below that is a lot of room so that chart is vulnerable to a decent drop if support breaks.
The DWCPF (S-fund) was up modestly as small caps lagged a bit yesterday, but managed a gain despite the small cap Russell 2000 index closing in negative territory. A couple of support lines seem to have helped hold it up yesterday. It's hard not to like this chart, but if that support breaks, it could move down quickly given how extended many of the indices are.
The dollar rallied early but fell back and lost 0.28% on the day, which is a pretty big move for the dollar. That came on the heals of the big rally on Wednesday. You can see that it hit the descending resistance line yesterday and dropped like a rock.
The EAFE (I-fund) was down but the decline in the dollar yesterday came after an early rally so the EFA may have to play catch up today - if the TSP didn't take that late decline in the dollar into consideration yet.
The Volatility Index did an about face after a morning rally, but it did close slightly higher and make a meaningful move above the resistance line of the descending channel, despite the rally in stocks. That's a bit of a red flag for the market.
The 10-year yield fell below the 50-day EMA and that could be important. There's a big open gap down near 0.575% and if it's heading down that low, the bond market may get another little rally.
BND (Bond ETF / F-fund) was up yesterday and if that open gap on the yield chart above gets filled, then we might see the open gap on BND get filled up near 89.3. It's early off the recent lows, but that could be a bear flag forming. A push back near 89 could negate that.
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
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.
