Stocks were mostly lower on Wednesday after an early rally pushed the indies to new highs. The Dow gained 62-points and did close at a new high, but otherwise it was red numbers for the indices, although we did see a decent move off the morning lows of the day. Bonds were up and the dollar was down slightly.
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The small stocks took a wild ride on Wednesday having gained over 1% in early trading, then diving to a moderate loss before closing down just slightly, at least for our S-fund, but the Russell 2000 was down more sharply.
The reason for the strong performance in the small caps recently has been the forecasting of a strong economic recovery, and the bulls certainly have the ducks all lined up for stocks to rally. Not only are interest rates at 0%, but the Fed balance sheet is off the charts, and of course it's only a matter of time before we get another round of trillion dollar stimulus heading into consumer's pockets. The credit markets also look sound. So, what could go wrong and why shouldn't we all just pile into stocks and those small caps?
How about this chart for one reason. This is a 12 year chart of the S-fund. Do you see anything wrong here?
Yes, the market has been thrown a softball, but I think it has already hit the ball out of the park. The long-term rising trading channel provides a decent angle of incline for an extended bull market, but when things go outside of the lines, it's probably a good time to start thinking about a snap back to reality - just as the break below the channel was a good buying opportunity early last year.
Momentum is a strong force in the market and it is not easy to stop, but when it does stop, the ride down may be just as quick as the ride up, if not faster.
After the Gamestop short-squeeze fiasco in late January, the Reddit group has been at it again with the cannabis stocks. Look what has happened to Tilray in recent days, one of the more heavily shorted stocks in that sector.
This, and other cannabis stocks, aren't at the short levels that Gamestop was, but they have really been beaten down in recent months leading up to this attempted short squeeze. This chart doesn't even show the gains from after hours yesterday. Last I saw it was trading in the 70's.
The reason this is meaningful is because of what this did to the markets in late January. When stocks can get pushed around like this, whether up or down, by hedge funds or individual groups, it can give investors some level of discomfort and distrust in the markets. For the record, I don't have anything against what either of these sides are doing, but I realize what the ramifications can be.
Monday is a holiday and the markets and TSP will be closed.
The S&P 500 (C-fund) made a new high in early trading on Wednesday, flipped over to temporarily lose all of this week's gains, then rebounded again to close just slightly negative. The overhead resistance line is holding, but it is rising.
The DWCPF (small caps / S-fund) was blasting off to new highs early on Wednesday as we saw a gain over 1% near the open yesterday. It ended the day just slightly flat but it took a wild route to get there, and it remains pinned to that blue resistance line, which is rising.
The EFA (I-fund) was down early and perhaps the I-find price will reflect some of the late rebound in U.S. stocks. As of this writing I don't have a price yet for the I-fund, but I imagine it will be better than the -0.34% that the EFA shows here.
The Dow Transportation Index continued to climb but it did close off the highs and close flat on the day. We're still watching the potential head and shoulders pattern that should be peaking around this area if it is indeed an H&S. Otherwise, new highs will nullify that theory.
BND (bonds / F-fund) had a nice day but it does remain in that bear flag that we talked about yesterday.
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.
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The small stocks took a wild ride on Wednesday having gained over 1% in early trading, then diving to a moderate loss before closing down just slightly, at least for our S-fund, but the Russell 2000 was down more sharply.
The reason for the strong performance in the small caps recently has been the forecasting of a strong economic recovery, and the bulls certainly have the ducks all lined up for stocks to rally. Not only are interest rates at 0%, but the Fed balance sheet is off the charts, and of course it's only a matter of time before we get another round of trillion dollar stimulus heading into consumer's pockets. The credit markets also look sound. So, what could go wrong and why shouldn't we all just pile into stocks and those small caps?
How about this chart for one reason. This is a 12 year chart of the S-fund. Do you see anything wrong here?
Yes, the market has been thrown a softball, but I think it has already hit the ball out of the park. The long-term rising trading channel provides a decent angle of incline for an extended bull market, but when things go outside of the lines, it's probably a good time to start thinking about a snap back to reality - just as the break below the channel was a good buying opportunity early last year.
Momentum is a strong force in the market and it is not easy to stop, but when it does stop, the ride down may be just as quick as the ride up, if not faster.
After the Gamestop short-squeeze fiasco in late January, the Reddit group has been at it again with the cannabis stocks. Look what has happened to Tilray in recent days, one of the more heavily shorted stocks in that sector.
This, and other cannabis stocks, aren't at the short levels that Gamestop was, but they have really been beaten down in recent months leading up to this attempted short squeeze. This chart doesn't even show the gains from after hours yesterday. Last I saw it was trading in the 70's.
The reason this is meaningful is because of what this did to the markets in late January. When stocks can get pushed around like this, whether up or down, by hedge funds or individual groups, it can give investors some level of discomfort and distrust in the markets. For the record, I don't have anything against what either of these sides are doing, but I realize what the ramifications can be.
Monday is a holiday and the markets and TSP will be closed.
The S&P 500 (C-fund) made a new high in early trading on Wednesday, flipped over to temporarily lose all of this week's gains, then rebounded again to close just slightly negative. The overhead resistance line is holding, but it is rising.
The DWCPF (small caps / S-fund) was blasting off to new highs early on Wednesday as we saw a gain over 1% near the open yesterday. It ended the day just slightly flat but it took a wild route to get there, and it remains pinned to that blue resistance line, which is rising.
The EFA (I-fund) was down early and perhaps the I-find price will reflect some of the late rebound in U.S. stocks. As of this writing I don't have a price yet for the I-fund, but I imagine it will be better than the -0.34% that the EFA shows here.
The Dow Transportation Index continued to climb but it did close off the highs and close flat on the day. We're still watching the potential head and shoulders pattern that should be peaking around this area if it is indeed an H&S. Otherwise, new highs will nullify that theory.
BND (bonds / F-fund) had a nice day but it does remain in that bear flag that we talked about yesterday.
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.
