Stocks opened sharply lower on Thursday, and despite closing in the red across the board, we continue to see intraday buying with the indices closing well off their lows. The Dow lost 120-points and once again small caps and the Nasdaq were the laggards. A weaker than expected jobless report helped push the dollar and yields lower.
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The bullish move in bond yields has the market's attention, and as we talked about earlier in the week, it is having an impact on growth stocks, and that is why the small caps and Nasdaq have been lagging.
What's happening is that longer term yields are rising with the prospects of economic growth over the longer-term. The 10-year Treasury Yield has moved convincingly above 1% this year after spending much of 2020 below that level. There are still short term economic concerns which is sending the 2-year yield down over that same period, and that steepens the 2/10 yield curve.
So, the 2-year / 10-year Treasury yield curve has become the steepest in 5 years, and that hasn't been a great sign for stocks over the next couple of years.
It doesn't mean sell everything today - although you may have other reasons to do that. But like an inverted yield curve predicts a recession in the coming months / years, this may be a warning sign as well.
The S&P 500 (C-fund) was down moderately yesterday but once again it closed well of the lows. The good news is, that's generally a short-term bullish sign. The bad news is, we had the same bullish sign going into Thursday and stocks were down at the open -- and at the close. The 20-day EMA was nearly tested, and that could still happen. But that has proven to be solid support for months, except for that one break down to the 50-day EMA in late January.
The DWCPF (small caps / S-fund) has been lagging because of the scare in growth stocks with yields and oil prices rising. One short-term support line was broken (red dashed) and it may be looking to the 20-day EMA support, which is also close at hand here.
The UUP dollar ETF chart tanked on Thursday, filling Wednesday's open gap, and almost completing the head and shoulders pattern already. It also fell back below the 50-day EMA. This looks pretty bearish for the dollar.
The EFA (I-fund) was down on the day but may have gotten some help from that weak dollar. It closed above one level of support, keeping it from officially becoming a double top formation.
The Dow Transportation Index was down moderately on Thursday but you can really see the positive reversal days on this chart. There is buying pressure out there on almost every dip, despite the losses over the last couple of days. This was a classic double top formation, but double tops are generally just temporary road blocks.
The VIX has been doing the opposite of the stock indices. It has spiked higher during the day, but has closed closer to the lows for several days now.
The BND (bonds / F-fund) was down as that 200-day EMA has become some stubborn resistance. The open gaps are there for a short term rebound, and the descending resistance line is high enough to allow those to get filled, but it has to overtake the 200-day EMA first.
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. Have a great weekend!
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 bullish move in bond yields has the market's attention, and as we talked about earlier in the week, it is having an impact on growth stocks, and that is why the small caps and Nasdaq have been lagging.
What's happening is that longer term yields are rising with the prospects of economic growth over the longer-term. The 10-year Treasury Yield has moved convincingly above 1% this year after spending much of 2020 below that level. There are still short term economic concerns which is sending the 2-year yield down over that same period, and that steepens the 2/10 yield curve.
So, the 2-year / 10-year Treasury yield curve has become the steepest in 5 years, and that hasn't been a great sign for stocks over the next couple of years.
It doesn't mean sell everything today - although you may have other reasons to do that. But like an inverted yield curve predicts a recession in the coming months / years, this may be a warning sign as well.
The S&P 500 (C-fund) was down moderately yesterday but once again it closed well of the lows. The good news is, that's generally a short-term bullish sign. The bad news is, we had the same bullish sign going into Thursday and stocks were down at the open -- and at the close. The 20-day EMA was nearly tested, and that could still happen. But that has proven to be solid support for months, except for that one break down to the 50-day EMA in late January.
The DWCPF (small caps / S-fund) has been lagging because of the scare in growth stocks with yields and oil prices rising. One short-term support line was broken (red dashed) and it may be looking to the 20-day EMA support, which is also close at hand here.
The UUP dollar ETF chart tanked on Thursday, filling Wednesday's open gap, and almost completing the head and shoulders pattern already. It also fell back below the 50-day EMA. This looks pretty bearish for the dollar.
The EFA (I-fund) was down on the day but may have gotten some help from that weak dollar. It closed above one level of support, keeping it from officially becoming a double top formation.
The Dow Transportation Index was down moderately on Thursday but you can really see the positive reversal days on this chart. There is buying pressure out there on almost every dip, despite the losses over the last couple of days. This was a classic double top formation, but double tops are generally just temporary road blocks.
The VIX has been doing the opposite of the stock indices. It has spiked higher during the day, but has closed closer to the lows for several days now.
The BND (bonds / F-fund) was down as that 200-day EMA has become some stubborn resistance. The open gaps are there for a short term rebound, and the descending resistance line is high enough to allow those to get filled, but it has to overtake the 200-day EMA first.
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. Have a great weekend!
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.
