Stocks pulled back sharply yesterday and the culprit was another rally in yields, which goes against the grain of lower interest rates and becoming more of a concern. The Dow lost 410-points but McDonald's losses accounted for about 100-points of that Dow loss. Technology took a hit after showing relative strength in recent trading. Tesla reported earnings after the bell and indications are that they were strong. Stocks did close off their lows so someone was doing some late buying.
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I know this is a snoozer, but it is bond yields that are shaking things up and I have been speculating if and when the 10-year Treasury Yield, which moved above 4.2% this week, was going to negatively influence the stock market, and maybe yesterday was really the first day that we saw a meaningful reaction.
BND is an ETF that the F-fund mimics, and both track long-term bonds, and it has been telling us that something is going on for some time now, while the stock market stalled but was basically indifferent to until yesterday.
Tesla was the first Magnificent 7 stock to report earnings and they were trading up over 11% after hours yesterday, but that was before the conference call, so things could change if there are any surprises. However, Tesla is probably the smallest of the Mag 7 companies and the least likely to push the market, although the Nasdaq should get some help. Here's the schedule for the other Mag 7's earnings releases - usually after the bell on the date shown.
After the Dot-Com Bubble crash in 2000, Warren Buffett came up with his Buffett Indicator that compares the market capitalization of the entire stock market (Wilshire 5000) to Gross Domestic Product (GDP) to tell whether equities are overvalued or undervalued at current prices. Over 100% (a 1-1 ratio) is getting over valued. In 2000 the indicator was 140%, and in 2007 before the 2008 financial crisis and prolonged bear market, it was just 110%. What is it now? 200%.
See larger image
Like the National Debt, we have all become numb to the extremes and assume it has become normal, but history suggests otherwise. But when things normalize is the frustrating part. Bull markets and bear markets tend to last longer than anyone thinks is reasonable.
It was just a down day and some support is already being tested, but there are reasons to stay vigilant in case this market is ready for something more serious. That strategy hasn't worked this year as anyone who stayed 100% in the C-fund all year is beating all but just a couple of our TSP Talk AutoTracker members. That's strong, but those who have been in are likely buy and holders and they will take the full brunt of any dip, pullback, correction, or bear market - that this market might have in store.
Admin Note: I am getting closer to completing the switch to the new servers and the new forum software, and we're down to checking some of the smaller details. I am hopeful that this weekend will be the official switch. Your patience is appreciated as we tackle any issues that will inevitably come up during the transition. Again, it will not impact Premium Service email and text alerts. I'll keep you posted.
The SPY (S&P 500 / C-fund) has broken below another layer of support as it starts to break down through the bottom of the bearish rising wedge pattern. There are a few more support levels below and one good sign yesterday was that it battled back after falling below its 20-day EMA intraday. The fact that it is above the 20, 50, and 200 days EMAs tells us it is in an uptrend, and until those start to break most money managers won't panic. The PMO indicator is about to flash a sell signal when it falls below its average, but we've had some false alarms there in the past. However, when these false breakdown stack up, usually a real breakdown is around the corner.
DWCPF (S-fund) fell sharply early and we have been highlighting that 2180 area as key support. Look where it closed: 2183 so there was some buying near that support on this first test. Today is another day to potentially test that support again.
The I-fund: The EFA tracking ETF was down 1.01% yesterday, ACWX was down 0.83%, and the "ex USA ex China ex Hong Kong Index" was down 0.79%. The final return should be somewhere in between those. The guessing game for the daily I-fund price may go on through the end of the year as the TSP transitions into the new tracking index, which is supposed to eventually mimic the "ex USA ex China ex Hong Kong Index." You can see the TSP's eventual final daily price and return posted on our site each evening.
The EFA chart did not hold at the 100-day EMA (not shown) but did hold at the September low.
The bond (F-fund) chart is posted 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.html
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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I know this is a snoozer, but it is bond yields that are shaking things up and I have been speculating if and when the 10-year Treasury Yield, which moved above 4.2% this week, was going to negatively influence the stock market, and maybe yesterday was really the first day that we saw a meaningful reaction.
BND is an ETF that the F-fund mimics, and both track long-term bonds, and it has been telling us that something is going on for some time now, while the stock market stalled but was basically indifferent to until yesterday.
Tesla was the first Magnificent 7 stock to report earnings and they were trading up over 11% after hours yesterday, but that was before the conference call, so things could change if there are any surprises. However, Tesla is probably the smallest of the Mag 7 companies and the least likely to push the market, although the Nasdaq should get some help. Here's the schedule for the other Mag 7's earnings releases - usually after the bell on the date shown.
After the Dot-Com Bubble crash in 2000, Warren Buffett came up with his Buffett Indicator that compares the market capitalization of the entire stock market (Wilshire 5000) to Gross Domestic Product (GDP) to tell whether equities are overvalued or undervalued at current prices. Over 100% (a 1-1 ratio) is getting over valued. In 2000 the indicator was 140%, and in 2007 before the 2008 financial crisis and prolonged bear market, it was just 110%. What is it now? 200%.
See larger image
Like the National Debt, we have all become numb to the extremes and assume it has become normal, but history suggests otherwise. But when things normalize is the frustrating part. Bull markets and bear markets tend to last longer than anyone thinks is reasonable.
It was just a down day and some support is already being tested, but there are reasons to stay vigilant in case this market is ready for something more serious. That strategy hasn't worked this year as anyone who stayed 100% in the C-fund all year is beating all but just a couple of our TSP Talk AutoTracker members. That's strong, but those who have been in are likely buy and holders and they will take the full brunt of any dip, pullback, correction, or bear market - that this market might have in store.
Admin Note: I am getting closer to completing the switch to the new servers and the new forum software, and we're down to checking some of the smaller details. I am hopeful that this weekend will be the official switch. Your patience is appreciated as we tackle any issues that will inevitably come up during the transition. Again, it will not impact Premium Service email and text alerts. I'll keep you posted.
The SPY (S&P 500 / C-fund) has broken below another layer of support as it starts to break down through the bottom of the bearish rising wedge pattern. There are a few more support levels below and one good sign yesterday was that it battled back after falling below its 20-day EMA intraday. The fact that it is above the 20, 50, and 200 days EMAs tells us it is in an uptrend, and until those start to break most money managers won't panic. The PMO indicator is about to flash a sell signal when it falls below its average, but we've had some false alarms there in the past. However, when these false breakdown stack up, usually a real breakdown is around the corner.
DWCPF (S-fund) fell sharply early and we have been highlighting that 2180 area as key support. Look where it closed: 2183 so there was some buying near that support on this first test. Today is another day to potentially test that support again.
The I-fund: The EFA tracking ETF was down 1.01% yesterday, ACWX was down 0.83%, and the "ex USA ex China ex Hong Kong Index" was down 0.79%. The final return should be somewhere in between those. The guessing game for the daily I-fund price may go on through the end of the year as the TSP transitions into the new tracking index, which is supposed to eventually mimic the "ex USA ex China ex Hong Kong Index." You can see the TSP's eventual final daily price and return posted on our site each evening.
The EFA chart did not hold at the 100-day EMA (not shown) but did hold at the September low.
The bond (F-fund) chart is posted 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.html
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.
