Things are getting a little dicey on Wall Street, whether it is because of the short squeeze going on in those heavily shorted stocks, or because the market was just looking for an excuse to pullback after its recent three month rally, and this was as good of an excuse as any. The Dow lost 621-points on Friday and we saw losses of near 2% in many indices on Friday.
[TABLE="align: center"]
[TR]
[TD="align: center"] Daily TSP Funds Return
[TABLE="align: center"]
[TR]
[TD="align: right"][/TD]
[/TR]
[/TABLE]
[/TD]
[TD]
[/TD]
[TD="width: 362, align: center"]
[/TD]
[/TR]
[/TABLE]
Perhaps it was a little disheartening to some investors to see stocks get be manipulated in a coordinated manner the way they have been over the last week or two in those heavily shorted companies. On the other hand those Reddit traders are giving the hedge funds a taste of their own medicine as they are usually the ones pushing stock prices around. This is exposing some of that behavior so whether you are a novice or a money manager, this had to have gotten your attention.
Is this why stocks are down? Maybe, but like I said, the indices were extended and it was probably just a matter of time before something kicked okf the next pullback. But how severe will it get?
The Russell 2000 small cap index was down 4.9% from its high from last Monday to Friday's lows, while the S&P 500 was off 4.6% from its highs. Is that it? Will that suffice for this pullback at this point, or do we need to see a 10% correction?
I still believe a day of reckoning is coming down the road, but the current conditions with the Fed and stimulus will probably keep the losses muted, and perhaps limited to that -5% to -10% area. But just the fact that I believe that, scares me. Like the COVID crash, you never know when the big one is coming.
I have been very defensive but if you've been waiting for an opportunity, nibbling on these pullbacks may not be the worst approach. It's tough to catch a falling knife, and almost impossible to time perfectly, but the opportunities will get more appealing with each step closer to a 10% correction. And as strong as the market has been, 10% may be too much to ask.
There are definitely some warnings out there, and the market leading Dow Transportation Index is one of the major issues. We saw this one peak on the 14th of January, as opposed the the S&P 500 which had just made a new high last Tuesday, so the Transports were leading on the downside in this pullback. On Friday it fell to a level it last hit back in November where, you guessed it, an open gap was lying in wait, and was filled. That could be a potential support area, but unfortunately the longer-term chart below that goes back to the March lows shows a breakdown in the rising trading channel, and and break below the 50-day EMA, so that is a warning sign we may not want to ignore.
With bonds not rallying, and gold actually looking quite weak, you have to wonder how much of a pullback we can get in stocks if no one is really too enthused about buying the safe havens? BND (bonds / F-fund) was down on Friday, and gold was was some but still not looking good unless the 200-day EMA is going to hold here.
The VIX is elevated and that means volatility will be too, and that's what happens in a nervous market. The question now is whether this is a typical pullback or the start of something more serious, and only time will tell. But keep an eye on the VIX and whether rallies are being sold or dips are being bought to get a feel for the severity of this pullback. When there's no bids on stocks, a trap door can open, but if there is an underlying bid, it usually means the big money is still interested in any bargains off the highs.
The futures opened sharply lower on Sunday evening, but they've tried to bounce back in the two hours since - at the time of this writing - and the S&P futures are down about 13.00 points at 8:30 PM ET - about 30-points off the initial opening low.
Admin note: Just an FYI, the monthly prize money has been increased for the AutoTracker winners for this year. First place will now have the option of taking a $50 Amazon eGift Card, and 2nd thru 5th can choose a $25 card. That is up from $30 and $15 in prior years. Good luck, and congratulations to SRS19 who won the January contest with a return of 8.66% for the month, and took the $50 Amazon card.
The S&P 500 (C-fund) tanked on Friday and found itself needing the 50-day EMA for support. Getting some support at that level on the first test on Friday is typical, but the real test comes early this week when we find out if it is going to hold after the day one test. It's a long down to go to the 200-day EMA, which would come into the picture if the 50-day EMA support does not hold. There is a small open gap still down by 3400, and as we mentioned above, the market leading Transports already filled its gap from back then.
The weekly chart of the S&P 500 shows another crack in the technical picture after a sharply rising support line (red) and a longer-term resistance line (orange), were both broken last week.
The DWCPF (small caps / S-fund) is also showing some cracks in the technical picture after the 20-day EMA and the rising support line broke last week, but if you are believer in repeating patterns, perhaps the similar looking pullback in late December is a good omen for a speedy recover in this pullback.
The EFA (I-fund) declined and, after breaking below three different rising support lines, also landed on its 50-day EMA - possibly a make or break area.
The Volatility Index was up 10% on Friday as you might expect on a -600 point day for the Dow, but so far that 37 area has been holding on the high end, and having that continue to hold will be important here.
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. 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"] Daily TSP Funds Return
[TR]
[TD="align: right"][/TD]
[/TR]
[/TABLE]
[/TD]
[TD]
[/TD]
[TD="width: 362, align: center"]
[/TR]
[/TABLE]
Perhaps it was a little disheartening to some investors to see stocks get be manipulated in a coordinated manner the way they have been over the last week or two in those heavily shorted companies. On the other hand those Reddit traders are giving the hedge funds a taste of their own medicine as they are usually the ones pushing stock prices around. This is exposing some of that behavior so whether you are a novice or a money manager, this had to have gotten your attention.
Is this why stocks are down? Maybe, but like I said, the indices were extended and it was probably just a matter of time before something kicked okf the next pullback. But how severe will it get?
The Russell 2000 small cap index was down 4.9% from its high from last Monday to Friday's lows, while the S&P 500 was off 4.6% from its highs. Is that it? Will that suffice for this pullback at this point, or do we need to see a 10% correction?
I still believe a day of reckoning is coming down the road, but the current conditions with the Fed and stimulus will probably keep the losses muted, and perhaps limited to that -5% to -10% area. But just the fact that I believe that, scares me. Like the COVID crash, you never know when the big one is coming.
I have been very defensive but if you've been waiting for an opportunity, nibbling on these pullbacks may not be the worst approach. It's tough to catch a falling knife, and almost impossible to time perfectly, but the opportunities will get more appealing with each step closer to a 10% correction. And as strong as the market has been, 10% may be too much to ask.
There are definitely some warnings out there, and the market leading Dow Transportation Index is one of the major issues. We saw this one peak on the 14th of January, as opposed the the S&P 500 which had just made a new high last Tuesday, so the Transports were leading on the downside in this pullback. On Friday it fell to a level it last hit back in November where, you guessed it, an open gap was lying in wait, and was filled. That could be a potential support area, but unfortunately the longer-term chart below that goes back to the March lows shows a breakdown in the rising trading channel, and and break below the 50-day EMA, so that is a warning sign we may not want to ignore.
With bonds not rallying, and gold actually looking quite weak, you have to wonder how much of a pullback we can get in stocks if no one is really too enthused about buying the safe havens? BND (bonds / F-fund) was down on Friday, and gold was was some but still not looking good unless the 200-day EMA is going to hold here.
The VIX is elevated and that means volatility will be too, and that's what happens in a nervous market. The question now is whether this is a typical pullback or the start of something more serious, and only time will tell. But keep an eye on the VIX and whether rallies are being sold or dips are being bought to get a feel for the severity of this pullback. When there's no bids on stocks, a trap door can open, but if there is an underlying bid, it usually means the big money is still interested in any bargains off the highs.
The futures opened sharply lower on Sunday evening, but they've tried to bounce back in the two hours since - at the time of this writing - and the S&P futures are down about 13.00 points at 8:30 PM ET - about 30-points off the initial opening low.
Admin note: Just an FYI, the monthly prize money has been increased for the AutoTracker winners for this year. First place will now have the option of taking a $50 Amazon eGift Card, and 2nd thru 5th can choose a $25 card. That is up from $30 and $15 in prior years. Good luck, and congratulations to SRS19 who won the January contest with a return of 8.66% for the month, and took the $50 Amazon card.
The S&P 500 (C-fund) tanked on Friday and found itself needing the 50-day EMA for support. Getting some support at that level on the first test on Friday is typical, but the real test comes early this week when we find out if it is going to hold after the day one test. It's a long down to go to the 200-day EMA, which would come into the picture if the 50-day EMA support does not hold. There is a small open gap still down by 3400, and as we mentioned above, the market leading Transports already filled its gap from back then.
The weekly chart of the S&P 500 shows another crack in the technical picture after a sharply rising support line (red) and a longer-term resistance line (orange), were both broken last week.
The DWCPF (small caps / S-fund) is also showing some cracks in the technical picture after the 20-day EMA and the rising support line broke last week, but if you are believer in repeating patterns, perhaps the similar looking pullback in late December is a good omen for a speedy recover in this pullback.
The EFA (I-fund) declined and, after breaking below three different rising support lines, also landed on its 50-day EMA - possibly a make or break area.
The Volatility Index was up 10% on Friday as you might expect on a -600 point day for the Dow, but so far that 37 area has been holding on the high end, and having that continue to hold will be important here.
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. 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.
