After some back and forth trading for most of the day, stocks rallied into the close giving some much needed relief to the weakened market. The gains came on average volume at best, so no signs of a capitulation, which I suppose isn't required, but it would have been more reassuring. Bond yields, the dollar and especially oil, were all down yesterday helping the stock market rally. The Dow gained 127-points after being down 129 at the lows.
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Bonds reacted favorably to the weaker than expected ADP jobs data which pulled yields and the dollar lower. The bond market closes an hour before the stock market so once they stopped trading and the decline in yields was cemented in, the stock market ran higher with that weight off its back. At this point yields don't have to go down to help the stock market. Just stabilizing could bring some relief.
The 10-year Treasury Yield declined moderately but I think it was more important to see the relentless rally stop for a day. Now the question is if the decline was anything more than a day of rest. The fact that it was related to the ADP employment data may help the weakness stick a little -- at least until the next wave of data, and we do get the September jobs report tomorrow.
The dollar also took a day off from rallying and that helped the situation, but the upward trend is clearly still intact and other than an open gap down by 29.75, the support looks firm for now.
The 2-year / 10-year Treasury yield curve is currently -0.32 meaning the 2-year yield is now just 0.32 above the 10-year. That's still inverted but the least so since the year began. We've talked before about the stock market not usually doing well when the curve steepens (gets less inverted) but historically it's because the Fed is cutting rates quickly to try to avoid a recession We're not close to that yet.
It was oil yesterday that may have had the biggest impact on stocks as it plunged $5 a barrel yesterday, and closed below $85 after hitting $95 just late last week. There's some support in the area so we'll see if buyers step up, but that was some drop so it doesn't look like a candidate for a quick reversal back up, even though it may already be getting oversold in the short-term.
The rally in stocks yesterday came on tepid trading volume challenging any arguments that it was a capitulation low. It's not impossible, but as I talked about yesterday, we saw capitulation in the Utility Sector on Tuesday, and this is what a capitulation is supposed to look like.
There were some volume spikes on quadruple expiration days earlier this year as shown, but Tuesday's action was more organic in that it was more conventional panic selling followed by a wave of buying triggering a reversal that looks like a solid low.
Here's what happened yesterday in the S&P 500 (C-fund): It was a nice reversal but volume was average at best. There's no law that says we have to have capitulation, but I think we are more likely to see a test of this week's lows at some point again, if we do get a decent relief rally. That's fine for market timers if you can be nimble. Some relief rallies can be quite large.
The Nasdaq chart still looks a little better than many of the other charts, but there is a small bear flag in red just above the green support line that could be something to keep an eye on. Otherwise, the 200-day EMA is holding at the bottom of that large descending green channel, which actually looks a lot like a big bull flag.
Would it be ironic if this index bottoms right as Apple was downgraded by KeyBank? It was already 15% off its July highs before that downgrade.
We get the September Jobs Report on Friday and estimates are looking for a gain of about 150,000 jobs. The unemployment rate is expected to drop to 3.7%.
From tsp.gov: "Some financial markets will be closed on Monday, October 9, in observance of Columbus Day. The Thrift Savings Plan will also be closed. Transactions that would have been processed Monday night (October 9) will be processed Tuesday night (October 10) at Tuesday's closing share prices."
Admin Note: Free Trial this week! Get the daily Last Look Report sent to you FREE! - No obligation More info about The Last Look Report
Here's the top performing accounts in the AutoTracker for September. Congratulations to the winners! You've got to be in it, to win it.
DWCPF (S-fund, small caps) were up but the smaller Russell 2000 stocks lagged and that bled into this small / mid-cap index. The concerning thing here is that the rally yesterday failed at the bottom of that open gap. Also, for the head and shoulders pattern to complete the formation, the downside target would be closer to 1618. This could bounce impressively if yields do stop going up or go down, but if not, it could easily flip right over again with all that overhead resistance.
The EFA (I-fund) was up slightly yesterday but with so much volatility after the overseas markets closed, the I-fund price could be anywhere. The TSP hasn't posted Wednesday's price yet as of this writing, but it wouldn't surprise me if it was negative, or greater than +0.18% as the EFA shows. It's up to the TSP, and if it's off, they will adjust it for today's price. This is a bad looking chart but with four open gaps above, it's due for relief like the other stock indices.
BND (bonds / F-fund) also had a relief rally and if this can finally bottom, it could rally big. However, if this rallies big, stocks could rally even more. There may be a point perhaps where stocks will complete a relief rally but a weakening economy could make bonds and the F-fund more attractive afterward.
Thanks so much for reading! We'll see you back here tomorrow.
Tom Crowley
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
Daily Market Commentary Archives
To get weekly or daily notifications when we post new commentary, sign up HERE.
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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Bonds reacted favorably to the weaker than expected ADP jobs data which pulled yields and the dollar lower. The bond market closes an hour before the stock market so once they stopped trading and the decline in yields was cemented in, the stock market ran higher with that weight off its back. At this point yields don't have to go down to help the stock market. Just stabilizing could bring some relief.
The 10-year Treasury Yield declined moderately but I think it was more important to see the relentless rally stop for a day. Now the question is if the decline was anything more than a day of rest. The fact that it was related to the ADP employment data may help the weakness stick a little -- at least until the next wave of data, and we do get the September jobs report tomorrow.
The dollar also took a day off from rallying and that helped the situation, but the upward trend is clearly still intact and other than an open gap down by 29.75, the support looks firm for now.
The 2-year / 10-year Treasury yield curve is currently -0.32 meaning the 2-year yield is now just 0.32 above the 10-year. That's still inverted but the least so since the year began. We've talked before about the stock market not usually doing well when the curve steepens (gets less inverted) but historically it's because the Fed is cutting rates quickly to try to avoid a recession We're not close to that yet.
It was oil yesterday that may have had the biggest impact on stocks as it plunged $5 a barrel yesterday, and closed below $85 after hitting $95 just late last week. There's some support in the area so we'll see if buyers step up, but that was some drop so it doesn't look like a candidate for a quick reversal back up, even though it may already be getting oversold in the short-term.
The rally in stocks yesterday came on tepid trading volume challenging any arguments that it was a capitulation low. It's not impossible, but as I talked about yesterday, we saw capitulation in the Utility Sector on Tuesday, and this is what a capitulation is supposed to look like.
There were some volume spikes on quadruple expiration days earlier this year as shown, but Tuesday's action was more organic in that it was more conventional panic selling followed by a wave of buying triggering a reversal that looks like a solid low.
Here's what happened yesterday in the S&P 500 (C-fund): It was a nice reversal but volume was average at best. There's no law that says we have to have capitulation, but I think we are more likely to see a test of this week's lows at some point again, if we do get a decent relief rally. That's fine for market timers if you can be nimble. Some relief rallies can be quite large.
The Nasdaq chart still looks a little better than many of the other charts, but there is a small bear flag in red just above the green support line that could be something to keep an eye on. Otherwise, the 200-day EMA is holding at the bottom of that large descending green channel, which actually looks a lot like a big bull flag.
Would it be ironic if this index bottoms right as Apple was downgraded by KeyBank? It was already 15% off its July highs before that downgrade.
We get the September Jobs Report on Friday and estimates are looking for a gain of about 150,000 jobs. The unemployment rate is expected to drop to 3.7%.
From tsp.gov: "Some financial markets will be closed on Monday, October 9, in observance of Columbus Day. The Thrift Savings Plan will also be closed. Transactions that would have been processed Monday night (October 9) will be processed Tuesday night (October 10) at Tuesday's closing share prices."
Admin Note: Free Trial this week! Get the daily Last Look Report sent to you FREE! - No obligation More info about The Last Look Report
Here's the top performing accounts in the AutoTracker for September. Congratulations to the winners! You've got to be in it, to win it.
DWCPF (S-fund, small caps) were up but the smaller Russell 2000 stocks lagged and that bled into this small / mid-cap index. The concerning thing here is that the rally yesterday failed at the bottom of that open gap. Also, for the head and shoulders pattern to complete the formation, the downside target would be closer to 1618. This could bounce impressively if yields do stop going up or go down, but if not, it could easily flip right over again with all that overhead resistance.
The EFA (I-fund) was up slightly yesterday but with so much volatility after the overseas markets closed, the I-fund price could be anywhere. The TSP hasn't posted Wednesday's price yet as of this writing, but it wouldn't surprise me if it was negative, or greater than +0.18% as the EFA shows. It's up to the TSP, and if it's off, they will adjust it for today's price. This is a bad looking chart but with four open gaps above, it's due for relief like the other stock indices.
BND (bonds / F-fund) also had a relief rally and if this can finally bottom, it could rally big. However, if this rallies big, stocks could rally even more. There may be a point perhaps where stocks will complete a relief rally but a weakening economy could make bonds and the F-fund more attractive afterward.
Thanks so much for reading! We'll see you back here tomorrow.
Tom Crowley
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
Daily Market Commentary Archives
To get weekly or daily notifications when we post new commentary, sign up HERE.
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.
