Stocks continued to struggled after peaking and reversing once the favorable CPI report was released last Tuesday. The Fed then reiterated their hawkish approach on Wednesday and the market has been retreating ever since. Friday was another one of those quadruple witching expiration Fridays and they are typically very wild days, and Friday was no exception. The Dow lost 282-points with losses near 1% in many indices including the TSP funds. Now we head into an historically favorable period for stocks, although in more recent years the Santa Claus rally hasn't been quite as easy to navigate.
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We can talk about the Fed, inflation, the jobs market, etc., but over the next couple of weeks it will be more about, not if, but when the market gives us a holiday boost. It doesn't matter if we're in a bull market, a bear market, and flat market, etc., the tendency during the lighter than normal trading days is to have some kind of Santa Claus rally, and it can trump the headlines and economic data.
Historically the so called Santa Claus rally goes from about December 21 through the first few days of trading in January and over the years market players had been programmed to jump in without fear and enjoy the gains. That has changed in more recent years and whether it's manipulation or just investors trying to outplay each other, they seem to take one of those weeks and turn it upside down. See Friday's commentary for some recent charts showing this recent trend.
This 30-year seasonality chart for December shows the block of green that comes toward the end of December, and it is so pronounced that normal fundamental and / or technical analysis can almost be ignored until after the new year. But again, in recent years there seems to be more gamesmanship involved rather than just buying in on the 15th and enjoying your holiday season.
Chart provided courtesy of www.sentimentrader.com
If you're a regular reader of these commentaries, you know I am very suspicious of market manipulation and we're just in the way of the big money's trading, and I believe the change in this bullish seasonality in December is part of it. Not that there's anything wrong with trying to out trade other traders, that's what this game is all about, but you have to be aware of what is happening.
Speaking of manipulation, did you see the controversial story about the massive buying that was done a minute before the favorable CPI report was released? This is a 1-minute chart (each bar represents one minute of action) of the S&P 500 futures last Tuesday and that's a 3% move in the two minutes BEFORE the CPI was released to the public on Tuesday morning. So this happens.
More: In 60 Seconds Before CPI Hit, Heavy Trading Drove Mystery Rally
And to keep the manipulation theme going, Friday was a quadruple witching expiration day where the December futures contracts and stock options expired. It always triggers a spike in trading volume and there's usually a big move associated with it and big money is really pushing and pulling the indices to get their expiring contracts into the money. It can cause a spring action move the week after.
This chart shows the prior four quadruple witching expiration Fridays. You can see the volume spike and you can see there is often a big move in the index directly afterward. In the case of the March and September expirations, the moves were in the same direction as prior to the expiration Friday, but the December 2021 and June expiration preceded a big change in direction within a day or two.
Here's a close up look at September's action surrounding the expiration Friday. It came following a recent peak. The Monday after, the 19th, opened lower but closed strong and at the highs of the day and ending with a solid gain, but it flipped back over the next day, on the 20th. I believe we got a strong retail report that day that triggered concerns about inflation.
Here's what happened on Friday. Ii looks a little similar. The difference this time is that we're heading into the holidays.
Bottom line: The index charts are in bad shape as we head into this normally bullish period for stocks and while we don't have the inside scoop on when and how much the markets are going to move, there is a pretty good chance that in the next two weeks we will get some kind of a meaningful rally that is very playable. The question is when it starts and how long it lasts.
Admin Note: This is another reminder to login to the TSP Talk AutoTracker if you haven't for a while. Accounts that have been idle for too long won't rollover into the New Year. I'll remind everyone again during the week before New Year's but in case you won't be around, here is your reminder. If you are not already on the AutoTracker, this is a good time to start so that we track your full year in 2023. It's free. More info on creating a new account: AutoTracker - How to get started
The S&P 500 (C-fund) is tumbling and often when this happens the best thing to do is step aside and let it happen, but as I have been obsessing over, the seasonality over the next two weeks could change what the charts are trying to tell us. The open gap just above 3800 has nearly filled, and there's other support in that same area. After that it's 3700, and that could inevitably be hit, but the question is whether it will be during this bullish seasonal period, or if the bulls will show up and postpone any further serious decline until after the holidays.
The DWCPF (S-fund) broke below some support on Friday, and what looked like sort of a bull flag. It closed with one of those spinning top candlestick patterns, which is often considered a reversal pattern so it will be interesting to see if the bulls can repair this chart which seems to be breaking otherwise. The open gap by 600 has now been filled.
The EFA / I-fund took a hit on Friday with the rest of the market, and a big two-day rally in the dollar helped push this back toward a rising support line. The dollar (not shown) is also up against the resistance of its 200-day EMA after the two day rally, which it fell below after the CPI report last Tuesday.
BND (Bonds / F-fund) was also down and technically it did fall below its recent trading channel. It did close well off its lows of the day suggesting some buying interest toward the end of the day, so we'll see it the bond bulls can repair this chart which has been failing since it hit its 200-day moving average (orange.)
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 so much 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="width: 338, align: center"] Daily TSP Funds Return
[TR]
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We can talk about the Fed, inflation, the jobs market, etc., but over the next couple of weeks it will be more about, not if, but when the market gives us a holiday boost. It doesn't matter if we're in a bull market, a bear market, and flat market, etc., the tendency during the lighter than normal trading days is to have some kind of Santa Claus rally, and it can trump the headlines and economic data.
Historically the so called Santa Claus rally goes from about December 21 through the first few days of trading in January and over the years market players had been programmed to jump in without fear and enjoy the gains. That has changed in more recent years and whether it's manipulation or just investors trying to outplay each other, they seem to take one of those weeks and turn it upside down. See Friday's commentary for some recent charts showing this recent trend.
This 30-year seasonality chart for December shows the block of green that comes toward the end of December, and it is so pronounced that normal fundamental and / or technical analysis can almost be ignored until after the new year. But again, in recent years there seems to be more gamesmanship involved rather than just buying in on the 15th and enjoying your holiday season.
Chart provided courtesy of www.sentimentrader.com
If you're a regular reader of these commentaries, you know I am very suspicious of market manipulation and we're just in the way of the big money's trading, and I believe the change in this bullish seasonality in December is part of it. Not that there's anything wrong with trying to out trade other traders, that's what this game is all about, but you have to be aware of what is happening.
Speaking of manipulation, did you see the controversial story about the massive buying that was done a minute before the favorable CPI report was released? This is a 1-minute chart (each bar represents one minute of action) of the S&P 500 futures last Tuesday and that's a 3% move in the two minutes BEFORE the CPI was released to the public on Tuesday morning. So this happens.
More: In 60 Seconds Before CPI Hit, Heavy Trading Drove Mystery Rally
And to keep the manipulation theme going, Friday was a quadruple witching expiration day where the December futures contracts and stock options expired. It always triggers a spike in trading volume and there's usually a big move associated with it and big money is really pushing and pulling the indices to get their expiring contracts into the money. It can cause a spring action move the week after.
This chart shows the prior four quadruple witching expiration Fridays. You can see the volume spike and you can see there is often a big move in the index directly afterward. In the case of the March and September expirations, the moves were in the same direction as prior to the expiration Friday, but the December 2021 and June expiration preceded a big change in direction within a day or two.
Here's a close up look at September's action surrounding the expiration Friday. It came following a recent peak. The Monday after, the 19th, opened lower but closed strong and at the highs of the day and ending with a solid gain, but it flipped back over the next day, on the 20th. I believe we got a strong retail report that day that triggered concerns about inflation.
Here's what happened on Friday. Ii looks a little similar. The difference this time is that we're heading into the holidays.
Bottom line: The index charts are in bad shape as we head into this normally bullish period for stocks and while we don't have the inside scoop on when and how much the markets are going to move, there is a pretty good chance that in the next two weeks we will get some kind of a meaningful rally that is very playable. The question is when it starts and how long it lasts.
Admin Note: This is another reminder to login to the TSP Talk AutoTracker if you haven't for a while. Accounts that have been idle for too long won't rollover into the New Year. I'll remind everyone again during the week before New Year's but in case you won't be around, here is your reminder. If you are not already on the AutoTracker, this is a good time to start so that we track your full year in 2023. It's free. More info on creating a new account: AutoTracker - How to get started
The S&P 500 (C-fund) is tumbling and often when this happens the best thing to do is step aside and let it happen, but as I have been obsessing over, the seasonality over the next two weeks could change what the charts are trying to tell us. The open gap just above 3800 has nearly filled, and there's other support in that same area. After that it's 3700, and that could inevitably be hit, but the question is whether it will be during this bullish seasonal period, or if the bulls will show up and postpone any further serious decline until after the holidays.
The DWCPF (S-fund) broke below some support on Friday, and what looked like sort of a bull flag. It closed with one of those spinning top candlestick patterns, which is often considered a reversal pattern so it will be interesting to see if the bulls can repair this chart which seems to be breaking otherwise. The open gap by 600 has now been filled.
The EFA / I-fund took a hit on Friday with the rest of the market, and a big two-day rally in the dollar helped push this back toward a rising support line. The dollar (not shown) is also up against the resistance of its 200-day EMA after the two day rally, which it fell below after the CPI report last Tuesday.
BND (Bonds / F-fund) was also down and technically it did fall below its recent trading channel. It did close well off its lows of the day suggesting some buying interest toward the end of the day, so we'll see it the bond bulls can repair this chart which has been failing since it hit its 200-day moving average (orange.)
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 so much 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.
