Stocks bounced back on Tuesday, and it was not exactly a typical turnaround Tuesday because we actually hit a new high just two trading days before on Friday, so the trend has been positive, but there was some backing and filling of the large gap opened on Monday morning. Nvidia, which led the decline on Monday, regained 9% after the 17% loss on Monday. Yields were up, perhaps causing the small caps to lag the large caps a bit, and the dollar also rallied, causing the I-fund to lag both the C and S-funds.
You can see the latest updated TSP share prices and returns, usually posted daily by 8:30 PM ET here: https://www.tsptalk.com/tsp_share_prices.php
Obviously almost anything can happen, but we try to look at tendencies, whether it's chart formations, seasonality, sentiment, various monetary conditions, etc. Right now things still look good for the stock market but perhaps the immediate concern - outside of the imminent Mag 7 earnings and the Fed's policies tomorrow, is the possibility of a retest of Monday's lows.
We are in the midst of a double top pullback in the S&P 500. Had we instead broken out to a new high (blue arrow), the tendency would be for it to eventually come back and retest the breakout area. It happened in early November.
Another possibility comes when we get a sharp sell off and it bounces back. There is a tendency - not a certainty - that it will come back down to retest the area of that prior decline. We saw that in the second half of December.
I won't base my trading on this specifically, but I wouldn't be far off if I anticipated either a breakout above 6100, followed by another pullback and test of 6100, or a retest of Monday's low near 5955. And there's no guarantees that these levels hold - that's part of the test.
Being the very busy news week that it is, we could see several charts do some cleaning up, whether testing certain support or resistance, or filling gaps, but keep in mind that these moves are often setting up opportunities.
Going back to that chart above, if you were looking to sell near the top last week but missed out, perhaps the rebound that might fill in Monday's gap is another opportunity to sell.
On the other hand if you wanted to buy near that open gap (blue) created on Jan17 near 5955, Monday's sell off gave you that opportunity.
So, perhaps this week will give us an opportunity or two, depending on what you are looking to happen. Could a news event fill the red open gap near 5835? Get ready, it could happen. Or could we even test the Jan 13 low near 5775?
Not that it is going to happen, but certain levels are targets and opportunities in those areas are possible.
Of course being TSP timers, we don't get the benefit of intraday reversals, and most meaningful reversals do happen during the day, while gaps up and down happen at the opening bell. For example, back to that same chart, if you were looking to buy the S&P 500 once it filled that open gap from early November, well it was filled near 5775 on Jan 13 but the index closed that day at 5836, or 61 points above that intraday low, so the reversal stole some of your thunder.
It's just one way I look at charts and the possibilities that are being presented. It keeps me from being overly surprised by anything, as long as the chart stays within the expected parameters. Monday's sell off was surprising, but we all saw those open gaps on the chart since the Jan 13 low and something was likely going to get the index back down to that area at some point to fill some, if not all of them.
Let's look at the Dow Transportation Index. It is meaningful to us as it is a good indication of economic conditions, and it often leads the S&P 500 Index. Right now it is forming what we call an "F" flag (coined by Oscar Carboni.) F-flags tend to eventually break down - although they can run higher for some time. This one has been running up but stalled at the the prior pullback low (black line.) There are also two open gaps below (red) so I would say that there is a pretty good chance that this will revisit the bottom of that first open gap near 16,275 on the downside at some point soon. Otherwise, a breakout above 16,900 brings back the possibility of another test of the November highs.
So I don't know what is going to happen, but I have an idea what I may do if those levels are hit. That is as opposed to being surprised that it happened and staring like a deer in headlights and not knowing what to do.
Get ready for today's Fed meeting. No rate hike is expected but clues will move the market. The market freaked out after their previous meeting in December where the Fed became more hawkish. Is that now priced in?
We also get earnings from Tesla, Microsoft and Meta after the closing bell so the opening bell on Thursday morning should be a big one - up or down, depending.
The S&P 500 (C-fund) nearly filled in the Monday morning gap with yesterday's gains. The double top is still in play and could hold as resistance, although it may try to fill in that open gap near 6100 first. That could happen early but the Fed's policy statement at 2 PM ET could change everything. We see the moving averages, the top of the bull flag (green) and the open gap below, as well as the open gap above and a potential breakout, so we have our window of possibilities. It's a pretty wide window right now, unfortunately.
DWCPF (S-fund) is doing some similar chart mending as the S&P 500, but the fact that it hasn't made a new high yet this year makes it a little more vulnerable. Lower highs can lead to lower lows, so the bulls need this to break above 2400 rather soon.
ACWX (the I-fund tracking index) was up 0.08% yesterday and the I-fund was given a gain of 0.13%. It's doing a good job of holding above the old resistance line and it has closed above that resistance for three straight days. Some sideways action would be a positive, but it could also retest the 50-day EMA and the open gaps near 53 and 51.75.
BND (bonds / F-fund) has been stuck in that descending channel for months now, and it is trying to hang onto its recent breakout above the 50-day EMA. Yesterday was a down day but the lows were on that 50-day average, so that's a good sign that it held.
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
Questions, comments, or issues with today's commentary? We can discuss it in the Forum.
Daily Market Commentary Archives
For more info our other premium services, please go here... www.tsptalk.com/premiums.php
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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You can see the latest updated TSP share prices and returns, usually posted daily by 8:30 PM ET here: https://www.tsptalk.com/tsp_share_prices.php
Obviously almost anything can happen, but we try to look at tendencies, whether it's chart formations, seasonality, sentiment, various monetary conditions, etc. Right now things still look good for the stock market but perhaps the immediate concern - outside of the imminent Mag 7 earnings and the Fed's policies tomorrow, is the possibility of a retest of Monday's lows.
We are in the midst of a double top pullback in the S&P 500. Had we instead broken out to a new high (blue arrow), the tendency would be for it to eventually come back and retest the breakout area. It happened in early November.
Another possibility comes when we get a sharp sell off and it bounces back. There is a tendency - not a certainty - that it will come back down to retest the area of that prior decline. We saw that in the second half of December.
I won't base my trading on this specifically, but I wouldn't be far off if I anticipated either a breakout above 6100, followed by another pullback and test of 6100, or a retest of Monday's low near 5955. And there's no guarantees that these levels hold - that's part of the test.
Being the very busy news week that it is, we could see several charts do some cleaning up, whether testing certain support or resistance, or filling gaps, but keep in mind that these moves are often setting up opportunities.
Going back to that chart above, if you were looking to sell near the top last week but missed out, perhaps the rebound that might fill in Monday's gap is another opportunity to sell.
On the other hand if you wanted to buy near that open gap (blue) created on Jan17 near 5955, Monday's sell off gave you that opportunity.
So, perhaps this week will give us an opportunity or two, depending on what you are looking to happen. Could a news event fill the red open gap near 5835? Get ready, it could happen. Or could we even test the Jan 13 low near 5775?
Not that it is going to happen, but certain levels are targets and opportunities in those areas are possible.
Of course being TSP timers, we don't get the benefit of intraday reversals, and most meaningful reversals do happen during the day, while gaps up and down happen at the opening bell. For example, back to that same chart, if you were looking to buy the S&P 500 once it filled that open gap from early November, well it was filled near 5775 on Jan 13 but the index closed that day at 5836, or 61 points above that intraday low, so the reversal stole some of your thunder.
It's just one way I look at charts and the possibilities that are being presented. It keeps me from being overly surprised by anything, as long as the chart stays within the expected parameters. Monday's sell off was surprising, but we all saw those open gaps on the chart since the Jan 13 low and something was likely going to get the index back down to that area at some point to fill some, if not all of them.
Let's look at the Dow Transportation Index. It is meaningful to us as it is a good indication of economic conditions, and it often leads the S&P 500 Index. Right now it is forming what we call an "F" flag (coined by Oscar Carboni.) F-flags tend to eventually break down - although they can run higher for some time. This one has been running up but stalled at the the prior pullback low (black line.) There are also two open gaps below (red) so I would say that there is a pretty good chance that this will revisit the bottom of that first open gap near 16,275 on the downside at some point soon. Otherwise, a breakout above 16,900 brings back the possibility of another test of the November highs.
So I don't know what is going to happen, but I have an idea what I may do if those levels are hit. That is as opposed to being surprised that it happened and staring like a deer in headlights and not knowing what to do.
Get ready for today's Fed meeting. No rate hike is expected but clues will move the market. The market freaked out after their previous meeting in December where the Fed became more hawkish. Is that now priced in?
We also get earnings from Tesla, Microsoft and Meta after the closing bell so the opening bell on Thursday morning should be a big one - up or down, depending.
The S&P 500 (C-fund) nearly filled in the Monday morning gap with yesterday's gains. The double top is still in play and could hold as resistance, although it may try to fill in that open gap near 6100 first. That could happen early but the Fed's policy statement at 2 PM ET could change everything. We see the moving averages, the top of the bull flag (green) and the open gap below, as well as the open gap above and a potential breakout, so we have our window of possibilities. It's a pretty wide window right now, unfortunately.
DWCPF (S-fund) is doing some similar chart mending as the S&P 500, but the fact that it hasn't made a new high yet this year makes it a little more vulnerable. Lower highs can lead to lower lows, so the bulls need this to break above 2400 rather soon.
ACWX (the I-fund tracking index) was up 0.08% yesterday and the I-fund was given a gain of 0.13%. It's doing a good job of holding above the old resistance line and it has closed above that resistance for three straight days. Some sideways action would be a positive, but it could also retest the 50-day EMA and the open gaps near 53 and 51.75.
BND (bonds / F-fund) has been stuck in that descending channel for months now, and it is trying to hang onto its recent breakout above the 50-day EMA. Yesterday was a down day but the lows were on that 50-day average, so that's a good sign that it held.
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
Questions, comments, or issues with today's commentary? We can discuss it in the Forum.
Daily Market Commentary Archives
For more info our other premium services, please go here... www.tsptalk.com/premiums.php
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.
