Stocks were floundering in the early session on Tuesday, but a rally ignited in the afternoon. Being the first day of a new month, it's not unusual to see new money coming into the market, hence the tendency for the first day to do well. The Dow ended the day up 237-points, and the other two major indices were in that same percentage gain area. The I-fund and small caps outperformed. The dollar was down again, and bonds were mostly flat.
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As we have seen for years, the FAANG / MAGA type stocks basically determine the direction of the major indices and the rest of them can flounder under the radar. Of course the S-fund found out that the under the radar can hurt while the Dow, S&P 500, and Nasdaq can stay stay fairly buoyant. The Nasdaq and S&P 500 futures opened higher on Tuesday night, but the Russell 2000 futures were actually down when they opened.
Earnings are rearview mirror information and guidance is more important, but obviously there are other things to consider for the marker aside from a search engine's earnings report. Those earnings have not yet been impacted by the upcoming interest rate hikes and we're looking at the four to potentially seven 0.25% increases that may be coming over the next year or two.
The yield on the 10-year is working in that direction, and the bull flag in red may be indicating a breakout to the upside at some point. Tech stocks may not like that.
The dollar was down again and that failed breakout has turned into another possible breakdown. Because of that we saw the I-fund and commodities do well yesterday.
A weak dollar hasn't been an issue recently thanks to the Fed's hawkish talk, but so far no action. If it does start to tumble, as we might expect in an inflationary environment -(remember the inflation problem?) we could see oil, which is now over $88 a barrel, start flirting with triple digits. You think you're paying a lot now at the pump?
Google earnings will help to start the day but we'll start getting more economic data coming in including the January jobs report on Friday. Estimates are looking for 180,000 jobs being added, and an unemployment rate of 3.9%. Hourly wages are expected to rise by 0.5%.
The stock charts we follow are all still under key resistance, but what tends to happen is either a reverse in course from this rebound, or a gap and go kind of rally. Google's earnings could be the catalyst to create the gap up, but it will be the close and how investors react to any positive opening that will count.
The S&P 500 (C-fund) chart is up above so let's start with the small caps.
The DWCPF (small caps / S-fund) had a third big up day in a row. That was after being down 24% from the November highs, so at this point this is just a relief rally as it sits below it's 20-day average and a possible resistance line near 2000, so it has some work to do before saying this bounce is anything more than that. Getting to the 50-day EMA would be a plus but once in a bear market, those moving averages get tougher to get back above.
The EFA (I-fund) is also in the process of a big bounce off that double bottom 73.50 low. But now it's up against its 200-day EMA, which can be a roadblock in a down trending market. We got the dead at bounce, and maybe Google pushes this over the top, but there's work to be done.
BND (Bonds / F-fund) was basically flat and still wallowing nears the lows with few attempts from bond bulls to buy yet.
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
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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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After hours many stocks were getting hit hard after releasing earnings, but Alphabet (Google) was the exception, and it's the market mover so you wouldn't know by looking at the futures of the disappointments from companies like PayPal, Starbucks, Electronic Arts, Gilead, Match, Sirius, UPS, Pulte, to name a few, which were all trading lower after hours. AMD did have a strong report as well so along with Google, they should help give tech stocks some wind at their backs today. Google also announced a 20 for 1 stock split, which is doing nothing for the company's value but it does get investors excited.
The question now is, will February 2nd be a problem for a bounce back rally as they were in 2008 and 2016, two prior years that had poor Januarys. I showed this chart yesterday as a possible set up, but Google may have help avoid this kind of reaction. We'll see.
The question now is, will February 2nd be a problem for a bounce back rally as they were in 2008 and 2016, two prior years that had poor Januarys. I showed this chart yesterday as a possible set up, but Google may have help avoid this kind of reaction. We'll see.
Here's the current S&P 500 (C-fund) chart, which looks very similar, including piercing the 20-day EMA.
As we have seen for years, the FAANG / MAGA type stocks basically determine the direction of the major indices and the rest of them can flounder under the radar. Of course the S-fund found out that the under the radar can hurt while the Dow, S&P 500, and Nasdaq can stay stay fairly buoyant. The Nasdaq and S&P 500 futures opened higher on Tuesday night, but the Russell 2000 futures were actually down when they opened.
Earnings are rearview mirror information and guidance is more important, but obviously there are other things to consider for the marker aside from a search engine's earnings report. Those earnings have not yet been impacted by the upcoming interest rate hikes and we're looking at the four to potentially seven 0.25% increases that may be coming over the next year or two.
The yield on the 10-year is working in that direction, and the bull flag in red may be indicating a breakout to the upside at some point. Tech stocks may not like that.
The dollar was down again and that failed breakout has turned into another possible breakdown. Because of that we saw the I-fund and commodities do well yesterday.
A weak dollar hasn't been an issue recently thanks to the Fed's hawkish talk, but so far no action. If it does start to tumble, as we might expect in an inflationary environment -(remember the inflation problem?) we could see oil, which is now over $88 a barrel, start flirting with triple digits. You think you're paying a lot now at the pump?
Google earnings will help to start the day but we'll start getting more economic data coming in including the January jobs report on Friday. Estimates are looking for 180,000 jobs being added, and an unemployment rate of 3.9%. Hourly wages are expected to rise by 0.5%.
The stock charts we follow are all still under key resistance, but what tends to happen is either a reverse in course from this rebound, or a gap and go kind of rally. Google's earnings could be the catalyst to create the gap up, but it will be the close and how investors react to any positive opening that will count.
The S&P 500 (C-fund) chart is up above so let's start with the small caps.
The DWCPF (small caps / S-fund) had a third big up day in a row. That was after being down 24% from the November highs, so at this point this is just a relief rally as it sits below it's 20-day average and a possible resistance line near 2000, so it has some work to do before saying this bounce is anything more than that. Getting to the 50-day EMA would be a plus but once in a bear market, those moving averages get tougher to get back above.
The EFA (I-fund) is also in the process of a big bounce off that double bottom 73.50 low. But now it's up against its 200-day EMA, which can be a roadblock in a down trending market. We got the dead at bounce, and maybe Google pushes this over the top, but there's work to be done.
BND (Bonds / F-fund) was basically flat and still wallowing nears the lows with few attempts from bond bulls to buy yet.
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.
