Stocks rebounded from some early losses on Friday despite the weaker than expected earnings from power houses Apple and Amazon, and the bulls took taking charge by the close. A late rally pushed the Dow, +89-points, the S&P 500 and Nasdaq to modest gains to end a strong month for the stock market. All of September's losses were erased in October, despite a few headwinds, and now the market's bullish momentum heads into the mostly favorable month of November.
[TABLE="align: center"]
[TR]
[TD="align: center"]
[/TD]
[TD]
[/TD]
[TD="width: 338, align: center"] Daily TSP Funds Return
[TABLE="align: center"]
[TR]
[TD="align: right"][/TD]
[/TR]
[/TABLE]
[/TD]
[/TR]
[/TABLE]
The S&P 500 (C-fund) is at a new high after a tremendous run in October. We can see that the September losses were all recovered, but now what? How long can some or all of those open gaps stay open? Or, can it climb back into that rising trading channel and ride that into the end of the year - without filling those gaps?
The weekly chart of the S&P 500 actually looks a lot more sane than the daily chart above, but it does show some possible longer term resistance just over 4600.
The DWCPF (S-fund) may be peaking but showed some strength in recent days, which could be calendar related. The open gap is obvious for everyone to see, and almost every rally toward new highs on this chart this year has led to a subsequent test of the lower end of the channel. If that continues then a move back down to 2200 wouldn't be too much of a surprise, but this chart has also been consolidating for the entire year and may be due for a breakout as we head into the time of year that has been very favorable to small caps. But it would be nice to see that gap get filled first so we can stop worrying about it.
The EFA (I-fund) was down and the sharp rally in the dollar didn't help. The rising support line was broken last week, and that potentially sets up a pullback to fill in some gaps. Technically it is above the 50-day EMA and pullback to test that average would be a nice place for support to kick in. If the lower open gap gets filled, that may muddy the chart a little more as it would be trading below the key average. It looks like 7975 is a key level here.
BND (Bonds / F-fund) was up and the big negative reversal in yields created a positive reversal here, right after it filled in that small gap below 85.20. It looks like it is still in some kind of bearish flag and it remains below both the 50-day EMA and the 200-day EMA, so it looks a little tentative until it can get back over 85.60.
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.
[TABLE="align: center"]
[TR]
[TD="align: center"]
[TD]
[/TD]
[TD="width: 338, align: center"] Daily TSP Funds Return
[TR]
[TD="align: right"][/TD]
[/TR]
[/TABLE]
[/TD]
[/TR]
[/TABLE]
After an explosive October, we head into this new month with many of the market movers having already reported earnings, although there are plenty of other companies still yet to report. We are also heading straight into a key FOMC meeting starting Tuesday and ending on Wednesday and we should find out a lot more about the extent of the tapering of their bond buying program. We may also get some clues about interest rates, but they seem to find every excuse to delay raising rates, which may be telling us that the economy is not firming up enough to tolerate a rate increase. Holding at 0% could also have the effect of promoting inflation, which a rate hike or two can potentially prevent, but it could also slow down the economic growth even further, so they are in a bit of a bind.
With that said, the stock market is seeing new highs in many indices, and heading into a new month there is a tendency to see big moves during the first day or so. Sometimes the indices gap up to start a new month, and sometimes they change direction from the major trend from the prior month. Early November has an historically bullish bias, but that is just a tendency and not a guarantee.
Momentum is a powerful force and right now the bulls have the momentum, but the chart of the S&P 500 is riddled with opens gaps, which have a strong tendency to get filled - although not always right away. It could take days, weeks, or even months, but they almost always get filled. Occasionally there is a "breakaway gap" that stays open for a long time, but to get a series of them like we just witnessed, is unusual and it would be more unusual if they all stayed open. Some people don't believe in that kind of analysis, but the charts don't lie.
Of course that doesn't answer the question about when, and I suppose it is possible that we could fly into the end of the year with these remaining open, but that would be to watch as we'd know they are there for the taking at some point.
Despite the gains, Friday was more of a mixed bag with the about the same number of stocks being up as down on both the NYSE and the Nasdaq, but volume was split with a lot more down volume on the NYSE, but advancing volume was very positive on the Nasdaq.
How the Nasdaq pulled that off after the poor earnings reports out of Apple and Amazon and both of them being down, was quite a trick, but it just shows you how much investor sentiment and momentum can control the market.
After selling off on Thursday, the dollar exploded to the upside on Friday for some reason - the economic data was pretty much inline with estimates, and because of that we saw why the I-fund lagged so much. Every time we think inflation is the main concern, the dollar shows these bouts of strength.
The yield on the 10-year Treasury was up sharply in early trading but it faded after filling in an open gap, and ended up closing at the lows of the day. Again, not what we'd expect in an inflationary environment. Now there's a bear flag forming and if this does breakdown, we'd have to question economic growth expectations because the bond market doesn't seem to be buying it.
Fourth quarter GDP estimate from GDPNow: Initial estimate: 6.6% — October 29, 2021
"The initial GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the fourth quarter of 2021 is 6.6 percent on October 29. The initial estimate of third-quarter real GDP growth released by the US Bureau of Economic Analysis on October 28 was 2.0 percent, 1.8 percentage point above the final GDPNow model nowcast released on October 27."
The futures haven't opened yet as of this writing, so it's hard to get a feel for how this new month will start, but there's a few things I've learned over the years. As I said above, the first day or two can big big movers (often gaps), mostly because of two things - new money coming into the market, or profit taking from a prior good month, which is why we often see noticeable reversals in direction when a new month starts. We often get gap openings one direction or the other for the same reason. The reversals don't always happen on the first day. In other words, a gap up doesn't mean we won't get a negative reversal by the end of the week. Translation, anything can happen, but it probably won't be a quiet day.
With that said, the stock market is seeing new highs in many indices, and heading into a new month there is a tendency to see big moves during the first day or so. Sometimes the indices gap up to start a new month, and sometimes they change direction from the major trend from the prior month. Early November has an historically bullish bias, but that is just a tendency and not a guarantee.
Momentum is a powerful force and right now the bulls have the momentum, but the chart of the S&P 500 is riddled with opens gaps, which have a strong tendency to get filled - although not always right away. It could take days, weeks, or even months, but they almost always get filled. Occasionally there is a "breakaway gap" that stays open for a long time, but to get a series of them like we just witnessed, is unusual and it would be more unusual if they all stayed open. Some people don't believe in that kind of analysis, but the charts don't lie.
Of course that doesn't answer the question about when, and I suppose it is possible that we could fly into the end of the year with these remaining open, but that would be to watch as we'd know they are there for the taking at some point.
Despite the gains, Friday was more of a mixed bag with the about the same number of stocks being up as down on both the NYSE and the Nasdaq, but volume was split with a lot more down volume on the NYSE, but advancing volume was very positive on the Nasdaq.
How the Nasdaq pulled that off after the poor earnings reports out of Apple and Amazon and both of them being down, was quite a trick, but it just shows you how much investor sentiment and momentum can control the market.
After selling off on Thursday, the dollar exploded to the upside on Friday for some reason - the economic data was pretty much inline with estimates, and because of that we saw why the I-fund lagged so much. Every time we think inflation is the main concern, the dollar shows these bouts of strength.
The yield on the 10-year Treasury was up sharply in early trading but it faded after filling in an open gap, and ended up closing at the lows of the day. Again, not what we'd expect in an inflationary environment. Now there's a bear flag forming and if this does breakdown, we'd have to question economic growth expectations because the bond market doesn't seem to be buying it.
Fourth quarter GDP estimate from GDPNow: Initial estimate: 6.6% — October 29, 2021
"The initial GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the fourth quarter of 2021 is 6.6 percent on October 29. The initial estimate of third-quarter real GDP growth released by the US Bureau of Economic Analysis on October 28 was 2.0 percent, 1.8 percentage point above the final GDPNow model nowcast released on October 27."
The futures haven't opened yet as of this writing, so it's hard to get a feel for how this new month will start, but there's a few things I've learned over the years. As I said above, the first day or two can big big movers (often gaps), mostly because of two things - new money coming into the market, or profit taking from a prior good month, which is why we often see noticeable reversals in direction when a new month starts. We often get gap openings one direction or the other for the same reason. The reversals don't always happen on the first day. In other words, a gap up doesn't mean we won't get a negative reversal by the end of the week. Translation, anything can happen, but it probably won't be a quiet day.
The S&P 500 (C-fund) is at a new high after a tremendous run in October. We can see that the September losses were all recovered, but now what? How long can some or all of those open gaps stay open? Or, can it climb back into that rising trading channel and ride that into the end of the year - without filling those gaps?
The weekly chart of the S&P 500 actually looks a lot more sane than the daily chart above, but it does show some possible longer term resistance just over 4600.
The DWCPF (S-fund) may be peaking but showed some strength in recent days, which could be calendar related. The open gap is obvious for everyone to see, and almost every rally toward new highs on this chart this year has led to a subsequent test of the lower end of the channel. If that continues then a move back down to 2200 wouldn't be too much of a surprise, but this chart has also been consolidating for the entire year and may be due for a breakout as we head into the time of year that has been very favorable to small caps. But it would be nice to see that gap get filled first so we can stop worrying about it.
The EFA (I-fund) was down and the sharp rally in the dollar didn't help. The rising support line was broken last week, and that potentially sets up a pullback to fill in some gaps. Technically it is above the 50-day EMA and pullback to test that average would be a nice place for support to kick in. If the lower open gap gets filled, that may muddy the chart a little more as it would be trading below the key average. It looks like 7975 is a key level here.
BND (Bonds / F-fund) was up and the big negative reversal in yields created a positive reversal here, right after it filled in that small gap below 85.20. It looks like it is still in some kind of bearish flag and it remains below both the 50-day EMA and the 200-day EMA, so it looks a little tentative until it can get back over 85.60.
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.
