Stocks were mixed but mostly higher on Friday to end a nice bounce back week for the stock market. The Dow gained 237-points while the S&P 500 gained a third of a percent and the Nasdaq slipped a bit. Small caps and the I-fund led on the upside. Bonds were down, and the dollar was up slightly but looks poised for another move higher.
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The Russell 2000 did their annual rebalancing after the close on Friday. The second spike of volume on the NYSE charts below was the result of the Russell rebalancing, where many stocks have to be bought and sold to mimic the new components of the Russell 2000. The first was spike was the prior weeks' options expiration Friday. Does this give us any tell for this week?
The one noticeable impact in 2020 was a change in direction in the NYSE right after the rebalancing in June was completed. It happened to be going down at that time and reversed up. This year stocks moved higher into the rebalancing. We'll see.
The action has certainly been bullish recently, but one of the things I have been watching is the negative divergences in some of the indicators. Looking at the PMO, price momentum indicator, we see that it was much higher during the prior peak in early May, then where it is now with the S&P 500 at a new high. That's concerning.
We saw this at the peak in early 2020 - a lower low in the PMO while the S&P was flying to a new high.
What happened next in 2020?
Of course that was the COVID crash and we can saw "it is different this time" but if you recall, COVID was being talked about as early as November of 2019 and into January of 2020 before anyone realized, or reacted to, what was about to hit us. But somehow the negative divergence in the PMO, something that is historically a red flag, was flashing a warning, and we see a similar warning now.
The July seasonality chart is quite bullish in the first half of the month, will a lull after the 2nd quarter earnings reports start to come out.
The S&P 500 (C-fund) popped up to a new all-time high on Friday, a week after investors ran for cover when the Fed talked about potential future interest rate hikes. They walked that back a bit last week and investors jumped all over it. The chart looks good although, as we talked about above, the week after the Russell rebalancing could prove interesting for the market after last year's reversal the week after the rebalancing was completed. You can also see the PMO indicator near its recent lows while the S&P is at the new high.
The DWCPF (S-fund) made a new high and it is reaching toward the top of that blue rising trading channel.
The Russell 2000 small caps index has not made a new high yet, although it is getting close. There was a bit off a negative reversal on Friday, but with that rebalancing going on , I'm not sure we should read too much into it yet.
The EFA (I-fund) was up nicely, even as the dollar was up, but the dollar actually rallied late and the I-fund gain of 0.49% may not have taken that into account yet. One open gap was filled on Thursday and there is one more small one open (red) near about 80.40.
The bull flag on the dollar could be looming trouble for the I-fund if it breaks out to the upside as bull flags tend to do.
The Dow Transportation Index was down slightly on Friday but that's not bad action considering that FedEx, one of the leaders of that index, was down 3.6% on the day. There is a small flag flying on this chart as well, and which way it breaks may tell us a lot about the next bigger move for the Transports. And since this is a market leader, that may be very meaningful. Reminder that a Dow Theory Sell signal was recently triggered.
BND (bonds / F-fund) was down sharply, but held at the 200-day EMA and seems to be catching a bid in that area this month. A close below 85.40 could be the line in the sand.
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.
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[TD="align: center"] Daily TSP Funds Return
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[TD="width: 362, align: center"]
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The Russell 2000 did their annual rebalancing after the close on Friday. The second spike of volume on the NYSE charts below was the result of the Russell rebalancing, where many stocks have to be bought and sold to mimic the new components of the Russell 2000. The first was spike was the prior weeks' options expiration Friday. Does this give us any tell for this week?
The one noticeable impact in 2020 was a change in direction in the NYSE right after the rebalancing in June was completed. It happened to be going down at that time and reversed up. This year stocks moved higher into the rebalancing. We'll see.
The action has certainly been bullish recently, but one of the things I have been watching is the negative divergences in some of the indicators. Looking at the PMO, price momentum indicator, we see that it was much higher during the prior peak in early May, then where it is now with the S&P 500 at a new high. That's concerning.
We saw this at the peak in early 2020 - a lower low in the PMO while the S&P was flying to a new high.
What happened next in 2020?
Of course that was the COVID crash and we can saw "it is different this time" but if you recall, COVID was being talked about as early as November of 2019 and into January of 2020 before anyone realized, or reacted to, what was about to hit us. But somehow the negative divergence in the PMO, something that is historically a red flag, was flashing a warning, and we see a similar warning now.
The July seasonality chart is quite bullish in the first half of the month, will a lull after the 2nd quarter earnings reports start to come out.
The S&P 500 (C-fund) popped up to a new all-time high on Friday, a week after investors ran for cover when the Fed talked about potential future interest rate hikes. They walked that back a bit last week and investors jumped all over it. The chart looks good although, as we talked about above, the week after the Russell rebalancing could prove interesting for the market after last year's reversal the week after the rebalancing was completed. You can also see the PMO indicator near its recent lows while the S&P is at the new high.
The DWCPF (S-fund) made a new high and it is reaching toward the top of that blue rising trading channel.
The Russell 2000 small caps index has not made a new high yet, although it is getting close. There was a bit off a negative reversal on Friday, but with that rebalancing going on , I'm not sure we should read too much into it yet.
The EFA (I-fund) was up nicely, even as the dollar was up, but the dollar actually rallied late and the I-fund gain of 0.49% may not have taken that into account yet. One open gap was filled on Thursday and there is one more small one open (red) near about 80.40.
The bull flag on the dollar could be looming trouble for the I-fund if it breaks out to the upside as bull flags tend to do.
The Dow Transportation Index was down slightly on Friday but that's not bad action considering that FedEx, one of the leaders of that index, was down 3.6% on the day. There is a small flag flying on this chart as well, and which way it breaks may tell us a lot about the next bigger move for the Transports. And since this is a market leader, that may be very meaningful. Reminder that a Dow Theory Sell signal was recently triggered.
BND (bonds / F-fund) was down sharply, but held at the 200-day EMA and seems to be catching a bid in that area this month. A close below 85.40 could be the line in the sand.
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.
