A late rally in the large caps on Friday made for an interesting ending to an interesting week for stocks. The Dow closed with a solid 216-point gain and the S&P 500 led with a gain near 1%. But you can see that the small caps of the S-fund, and the I-fund both closed with losses on the day. Bonds rallied early after the stronger than expected CPI report, but faded and closed flat. The final two weeks in December have a strong seasonal bias, but that doesn't start until next week.
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The S&P 500 (C-fund) didn't quite make a new high on Friday, but it was a record closing high. I have been seeing an inverted head and shoulders pattern forming, which tend to be bullish, but that means a right shoulder may need to form first before we see a meaningful breakout. It would be nice if that open gap near about 4610 gets filled in the process, and it would also be nice if it happened this week in time for the Santa Claus rally which generally starts a little closer to Christmas. The rally up near the old highs makes a test of the lows less likely, but that's not out of the question.
The weekly chart shows that the longer term support line held again during the recent pullback, and the index is about 2% below the top of that red resistance line, although the blue trading channel suggests that it could go higher if it can break through that resistance.
The DWCPF Index (S-fund) is an example of what a dead cat bounce looks like. This index has been slammed over the last month, but it did get a nice rebound back up to that orange moving average, which had been strong support for several months, but now it seems to be holding as resistance. A decline that sharp doesn't usually end in a "V" bottom like we saw from July to September.
The EFA (I-fund) held up but it is having a little trouble recapturing the 50-day EMA. There's a small overhead gap still open, and a large open gap below - both red boxes. The blue boxes are gaps that have been filled. A slow move down to the 78 area would not only fill that open gap, but also test the old resistance line, which could try to act as support along with the bottom of that gap.
BND (Bonds / F-fund) made a move higher earlier in the day, filled an open gap, then backed down again to close back below the 50 and 200-day EMAs for a third straight day. Not the best looking chart and the bottom of its open gap near 84.60 looks like the next potential downside target.
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.
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The CPI report came in hotter than estimated and the market was worried about that. So why did it rally? It seemed more like a "buy the news" reaction after stocks "sold the rumor" for much of November as investors anticipated the inflationary data coming out. Of course the Fed is taking all of this in and this week's FOMC meeting will give us a better idea about how serious they are about a tighter monetary policy, which is more concerning to the market than the inflation itself.
The difference between the S&P 500 larger cap stocks index and the DWCPF small and mid-cap stocks of our S-fund was very apparent again on Friday. 2020 was the year of the small caps but in 2021 the S&P 500 (C-fund) is up 27% for the year, which is more than the S and I-funds are up combined, which is quite unusual.
Moreover, I read that Friday was the first time ever that the S&P 500 closed at an all-time high, on the same day that the Russell 2000 small caps index closed below its 200-day average.
Internally the breadth was surprisingly quite negative with both the NYSE and the Nasdaq seeing more issues down on the day than up, despite the big gains in the indices. Share volume was actually positive on the NYSE despite more stocks down than up on Friday.
The yield on the 10-year Treasury fell early after the release of the stronger than expected CPI report, but closed well off the lows and into positive territory. Strong economic data generally lifts yields but we've seen some odd weakness here in recent weeks.
The dollar also fluctuated a lot but ended the day slightly lower. This looks like a bullish flag but that doesn't make a whole lot of sense in an inflationary environment, but of course the Fed has been talking about raising rates and tapering their bond buying, so that could be helping the dollar.
I mentioned the seasonal advantage that is coming up during the final two weeks of December, but it may surprise you that 4 of the last 6 years saw losses during the final two weeks in December, although the last two (2019 and 2020) were positive, so it was a 4 year losing streak between 2015 and 2018.
2022 could be an interesting year with Fed all but committing to multiple rate hikes, and not just because the economy is getting stronger, but because of inflationary concerns, so it has some negative connotations. The general rule over the years has been 3 hikes and the market starts to wobble. Of course it has been a long, long time since we had a Fed raising rates aggressively.
The difference between the S&P 500 larger cap stocks index and the DWCPF small and mid-cap stocks of our S-fund was very apparent again on Friday. 2020 was the year of the small caps but in 2021 the S&P 500 (C-fund) is up 27% for the year, which is more than the S and I-funds are up combined, which is quite unusual.
Moreover, I read that Friday was the first time ever that the S&P 500 closed at an all-time high, on the same day that the Russell 2000 small caps index closed below its 200-day average.
Internally the breadth was surprisingly quite negative with both the NYSE and the Nasdaq seeing more issues down on the day than up, despite the big gains in the indices. Share volume was actually positive on the NYSE despite more stocks down than up on Friday.
The yield on the 10-year Treasury fell early after the release of the stronger than expected CPI report, but closed well off the lows and into positive territory. Strong economic data generally lifts yields but we've seen some odd weakness here in recent weeks.
The dollar also fluctuated a lot but ended the day slightly lower. This looks like a bullish flag but that doesn't make a whole lot of sense in an inflationary environment, but of course the Fed has been talking about raising rates and tapering their bond buying, so that could be helping the dollar.
I mentioned the seasonal advantage that is coming up during the final two weeks of December, but it may surprise you that 4 of the last 6 years saw losses during the final two weeks in December, although the last two (2019 and 2020) were positive, so it was a 4 year losing streak between 2015 and 2018.
2022 could be an interesting year with Fed all but committing to multiple rate hikes, and not just because the economy is getting stronger, but because of inflationary concerns, so it has some negative connotations. The general rule over the years has been 3 hikes and the market starts to wobble. Of course it has been a long, long time since we had a Fed raising rates aggressively.
The S&P 500 (C-fund) didn't quite make a new high on Friday, but it was a record closing high. I have been seeing an inverted head and shoulders pattern forming, which tend to be bullish, but that means a right shoulder may need to form first before we see a meaningful breakout. It would be nice if that open gap near about 4610 gets filled in the process, and it would also be nice if it happened this week in time for the Santa Claus rally which generally starts a little closer to Christmas. The rally up near the old highs makes a test of the lows less likely, but that's not out of the question.
The weekly chart shows that the longer term support line held again during the recent pullback, and the index is about 2% below the top of that red resistance line, although the blue trading channel suggests that it could go higher if it can break through that resistance.
The DWCPF Index (S-fund) is an example of what a dead cat bounce looks like. This index has been slammed over the last month, but it did get a nice rebound back up to that orange moving average, which had been strong support for several months, but now it seems to be holding as resistance. A decline that sharp doesn't usually end in a "V" bottom like we saw from July to September.
The EFA (I-fund) held up but it is having a little trouble recapturing the 50-day EMA. There's a small overhead gap still open, and a large open gap below - both red boxes. The blue boxes are gaps that have been filled. A slow move down to the 78 area would not only fill that open gap, but also test the old resistance line, which could try to act as support along with the bottom of that gap.
BND (Bonds / F-fund) made a move higher earlier in the day, filled an open gap, then backed down again to close back below the 50 and 200-day EMAs for a third straight day. Not the best looking chart and the bottom of its open gap near 84.60 looks like the next potential downside target.
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.
