Stocks sold off on Friday like a big exhale after yet another failed attempt to breakout to new highs. The U of Michigan Consumer Sentiment Report came out about 30 minutes into Friday's trading day, and perhaps coincidentally, the market really started to tumble after rumors came out of another coronavirus in China, but that seems to be a non-issue and let's hope that's the last we hear of it. Was it an overreaction, or a warning of things to come?
Maybe it was a shakeout operation to scare out the small investors? There wasn't much news but the markets have been treading water for a long time near the all time highs - at least the S&P 500 has. There's an old saying about markets - they don't usually give you a lot of time to sell a top, or market peak. In other words, if the 6100+ area is going to be a major peak, they probably wouldn't have it pinned up there for three months before rolling over. Is that true, or just a saying? I don't know.
We'll go over the charts below but a quick look at the S&P 500 shows that 6100 area getting repeatedly tested, and once again it is backing off.
I mentioned a few days ago that money managers are holding very low amounts of cash, which was concerning and potentially a sign of too much bullishness and optimism, and that can be a contrarian indicator. But so too is too much bearishness and pessimism, especially from the so called dumb money, or us retail investors, and we may be seeing some of that.
I used AI to tell me how much cash retail investors (you and I) are holding. They sourced a few places, mostly from eToro, and that data was collected back in June of last year, so it's a bit dated, but here are a few highlights from Gemini:
"According to recent data [Back in June, actually], retail investors are holding significant amounts of cash in their portfolios. A survey by eToro indicates that 76% of investors own cash assets, making cash a prominent part of their holdings. This trend is partly driven by the availability of high-yield savings accounts with interest rates around 5%, which has encouraged investors to keep more cash on hand.
"A general rule of thumb suggests that cash and cash equivalents should comprise between 2% and 10% of a portfolio, although this can vary depending on an investor's risk tolerance and financial goals.
"In summary, retail investors are maintaining high levels of cash in their portfolios as a defensive strategy, but the exact percentage depends on individual investment objectives and market conditions."
Next, I asked Gemini to "create a chart of historical levels of cash held by retail investors", and it actually just gave me post-June 2024 data, and it shows cash levels still on the rise for the small investors since that June 2024 survey.
On the surface, this seems like a bullish development if we can trust the data and histological tendencies. Mom and pop may be getting too bearish, meanwhile some of the major indices are near the all-time highs. Odd, but the market does like to climb that wall of worry.
I'll show our Plus subscribers a very interesting chart in the premium area below regarding Fed liquidity and the S&P 500 over the last year, but suffice it to say that stocks tend to do better when liquidity is on the rise, and liquidity is now on the rise.
Here is the weekly chart of the S&P 500 (C-fund.) It closed just above the 10-week moving average (blue line), an area that often holds after a pullback. In a bull market, every few months the 20-week moving average gets tested, so if the 10-week average fails to hold, there are about 75-points between the two averages as the 20-week MA is currently 5959.
Here's a closer look at the weekly chart and those two averages...
The small caps of the Russell 2000 dropped nearly 3% on Friday and that took it down to the 200-day EMA already. That's a pretty big test as it has been holding as support for over a year now.
The DWCPF, which is our S-fund, hasn't come down that far yet, but after the 3.07% decline on Friday, and 4.5% loss for the week, it needs some help because the 200-day average is still another 3% below Friday's close.
Small caps had been doing better when yields were falling, but yields are falling late last week, and it didn't help. The 10-year Treasury Yield almost hit 4.4%, which is basically testing the lows for the new year. A move below 4.4% would keep this current downtrend in yields alive. The 10-year closed back below its 50-day EMA.
The decline in yields is helping to keep the rally in bonds (F-fund) going as it made a new high for the year on Friday.
And of course, we have to mention this February seasonality chart again as it suggested last week was going to be trouble. It didn't start out that way, but it sure ended on script with February 21 being the worst day of the bunch. The chart does improve some this week, and then March gets a lot better.
Chart provided courtesy of www.sentimentrader.com
I had been anticipating some kind of a pullback that I wanted to buy, but the bullish momentum in stocks kept me from being overly defensive, and that cost me last week. Now the question of whether Friday's sell off was the start of something, or the end. Is this the beginning of a meaningful correction, or was it just another buy the dip opportunity?
There's a lot of FOMC members scheduled to speak this week, and that can trigger some intraday knee-jerk reactions. Perhaps the highlight of the week will come after the close on Wednesday when Nvidia reports earnings.
The 3 - 5 day breakout rule worked again on the S&P 500. That is, on any breakout or breakdown, don't get too comfortable until we see at least 3 closes above resistance, or below support. It has failed a couple of times this year. The 50-day EMA is where the index came to rest at the close on Friday. Two things are very common after a day like Friday. It's rare to see a day like that, which closed at the lows, to be a low, so I wouldn't be surprised if we see another round of selling early this week. But, breakdown candlesticks like Friday's also eventually get retraced. See the blue boxes below.
DWCPF (S-fund) took a big hit on Friday and it would be hard to believe that this happened for no reason. The bulls may be calling it an overreaction, to some degree that could be the case, but I always worry that a move like that on little to no major news, means. I hope I am wrong. Technically, it is sitting where support has held for a long time - that 130-day average.
Why 130 days? I don't know. You look for what works on any given chart, and you go with it until it stops working.
ACWX (the I-fund tracking index) was down but not to the extent of the US indices. Of course many of the Asian and European markets were closed when most the damage was done in the US, but with the dollar up 0.35% on Friday, I'm surprised it held up so well.
I address BND and the F-fund up top.
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.
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For more info our other premium services, please go here... www.tsptalk.com/premiums.php
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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 may use additional methods and strategies to determine fund positions.
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Maybe it was a shakeout operation to scare out the small investors? There wasn't much news but the markets have been treading water for a long time near the all time highs - at least the S&P 500 has. There's an old saying about markets - they don't usually give you a lot of time to sell a top, or market peak. In other words, if the 6100+ area is going to be a major peak, they probably wouldn't have it pinned up there for three months before rolling over. Is that true, or just a saying? I don't know.
We'll go over the charts below but a quick look at the S&P 500 shows that 6100 area getting repeatedly tested, and once again it is backing off.
I mentioned a few days ago that money managers are holding very low amounts of cash, which was concerning and potentially a sign of too much bullishness and optimism, and that can be a contrarian indicator. But so too is too much bearishness and pessimism, especially from the so called dumb money, or us retail investors, and we may be seeing some of that.
I used AI to tell me how much cash retail investors (you and I) are holding. They sourced a few places, mostly from eToro, and that data was collected back in June of last year, so it's a bit dated, but here are a few highlights from Gemini:
"According to recent data [Back in June, actually], retail investors are holding significant amounts of cash in their portfolios. A survey by eToro indicates that 76% of investors own cash assets, making cash a prominent part of their holdings. This trend is partly driven by the availability of high-yield savings accounts with interest rates around 5%, which has encouraged investors to keep more cash on hand.
"A general rule of thumb suggests that cash and cash equivalents should comprise between 2% and 10% of a portfolio, although this can vary depending on an investor's risk tolerance and financial goals.
"In summary, retail investors are maintaining high levels of cash in their portfolios as a defensive strategy, but the exact percentage depends on individual investment objectives and market conditions."
Next, I asked Gemini to "create a chart of historical levels of cash held by retail investors", and it actually just gave me post-June 2024 data, and it shows cash levels still on the rise for the small investors since that June 2024 survey.
On the surface, this seems like a bullish development if we can trust the data and histological tendencies. Mom and pop may be getting too bearish, meanwhile some of the major indices are near the all-time highs. Odd, but the market does like to climb that wall of worry.
I'll show our Plus subscribers a very interesting chart in the premium area below regarding Fed liquidity and the S&P 500 over the last year, but suffice it to say that stocks tend to do better when liquidity is on the rise, and liquidity is now on the rise.
Here is the weekly chart of the S&P 500 (C-fund.) It closed just above the 10-week moving average (blue line), an area that often holds after a pullback. In a bull market, every few months the 20-week moving average gets tested, so if the 10-week average fails to hold, there are about 75-points between the two averages as the 20-week MA is currently 5959.
Here's a closer look at the weekly chart and those two averages...
The small caps of the Russell 2000 dropped nearly 3% on Friday and that took it down to the 200-day EMA already. That's a pretty big test as it has been holding as support for over a year now.
The DWCPF, which is our S-fund, hasn't come down that far yet, but after the 3.07% decline on Friday, and 4.5% loss for the week, it needs some help because the 200-day average is still another 3% below Friday's close.
Small caps had been doing better when yields were falling, but yields are falling late last week, and it didn't help. The 10-year Treasury Yield almost hit 4.4%, which is basically testing the lows for the new year. A move below 4.4% would keep this current downtrend in yields alive. The 10-year closed back below its 50-day EMA.
The decline in yields is helping to keep the rally in bonds (F-fund) going as it made a new high for the year on Friday.
And of course, we have to mention this February seasonality chart again as it suggested last week was going to be trouble. It didn't start out that way, but it sure ended on script with February 21 being the worst day of the bunch. The chart does improve some this week, and then March gets a lot better.
Chart provided courtesy of www.sentimentrader.com
I had been anticipating some kind of a pullback that I wanted to buy, but the bullish momentum in stocks kept me from being overly defensive, and that cost me last week. Now the question of whether Friday's sell off was the start of something, or the end. Is this the beginning of a meaningful correction, or was it just another buy the dip opportunity?
There's a lot of FOMC members scheduled to speak this week, and that can trigger some intraday knee-jerk reactions. Perhaps the highlight of the week will come after the close on Wednesday when Nvidia reports earnings.
The 3 - 5 day breakout rule worked again on the S&P 500. That is, on any breakout or breakdown, don't get too comfortable until we see at least 3 closes above resistance, or below support. It has failed a couple of times this year. The 50-day EMA is where the index came to rest at the close on Friday. Two things are very common after a day like Friday. It's rare to see a day like that, which closed at the lows, to be a low, so I wouldn't be surprised if we see another round of selling early this week. But, breakdown candlesticks like Friday's also eventually get retraced. See the blue boxes below.
DWCPF (S-fund) took a big hit on Friday and it would be hard to believe that this happened for no reason. The bulls may be calling it an overreaction, to some degree that could be the case, but I always worry that a move like that on little to no major news, means. I hope I am wrong. Technically, it is sitting where support has held for a long time - that 130-day average.
Why 130 days? I don't know. You look for what works on any given chart, and you go with it until it stops working.
ACWX (the I-fund tracking index) was down but not to the extent of the US indices. Of course many of the Asian and European markets were closed when most the damage was done in the US, but with the dollar up 0.35% on Friday, I'm surprised it held up so well.
I address BND and the F-fund up top.
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 may use additional methods and strategies to determine fund positions.
