Stocks got the Fed hangover that we talked about yesterday after the benign reaction to the more hawkish tone that Powell expressed at the FOMC press conference on Wednesday. The Dow dropped 764-points and we saw 2% to 3% plus losses in most indices. Bonds yields were down (bond prices up) with the threat of recession building, but also with stocks and gold down, bonds may be the go to safe haven at the moment. The battle now is going to be between the poor development in the charts versus the upcoming bullish seasonality.
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Before I forget, today is a quadruple witching expiration day for futures, stocks and index options, so getting whippy unusual action is par for the course. But throw in what we have gone through this week with the CPI, interest rate hike, and yesterday's major sell off, and who knows what they'll throw at us today?
The dollar popped higher which tends to put pressure on stock prices. It hasn't broken above any resistance yet and we actually could know pretty quickly if it is going to roll back over as it backed off from the 200-day moving average yesterday after filling Tuesday's open gap.
The yield on the 10-year was down again and the bear flags continue to form. Why would yields be falling if the Fed is still raising interest rates? It's generally a bet on a weaker economic outlook and, as I mentioned above, perhaps a safe haven while stocks stumble.
The next couple of weeks are not completely about the bullish holiday seasonality, but it is certainly going to play a role. Whether stocks are doing well or not in a given year, there does tend to be a period of strength at some point in the final couple of weeks in December, and into the first couple of days into January. You don't hear about this as much, but I have noticed over the years that what happens during the week between Christmas and New Years isn't always bullish but rather it has a tendency to flip direction for several days rather than just move in one direction. It's not exact, but let's take a look at some examples from the last five years to see what I mean.
Again, not always, but if the week before Christmas is down, there's a pretty good chance that the week after will be up, and vice versa.
Even during the prior two major bear markets in 2008 and 2000 we saw similar action. 2001 was also part f the bear market and though it is not shown, the S&P 500 was up almost every day during the final two weeks of that year.
So seasonality, while not normally a primary indicator, will play a major role around these next two major holidays.
Here's that old (1950 - 2011) chart of the performance of the S&P surrounding Christmas Day. There's a lot of green in there with most of it between Christmas and New Year's Day, so that's a little different. But as we covered above, in more recent years it's more of a back and forth.
Chart provided courtesy of www.sentimentrader.com
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: AutoTracler - How to get started
The S&P 500 (C-fund) gapped down yesterday with its post Fed hangover. The chart looks questionable but I might feel a lot more bearish if we weren't heading into the holidays. Not that stocks can't sell off next week. Take a look at the 2018 chart up above when the market tanked right through Christmas Eve, but that happened to be the low of a major decline that year, and the week after Christmas was explosive to the upside. So the question for the next two weeks is, which one of those open gaps (the red rectangles) gets filled first? There's a case that can be made that the green lines are part of a bull flag, but there's no clear flag pole. That 3900 level has been an important area for several months now.
The DWCPF (S-fund) nearly filled in its open gap from November as it fell below the 20 and 50-day EMAs, which is not a good sign, but there is a lot converging support near 1600 which looks to be a make or break area. It has that bull flag thing going on here as well, but not much of a flag pole so it's questionable.
The EFA / I-fund has been the leader over the last couple of months but yesterday a strong dollar pushed it below some key support and it may look to test that 200-day EMA, which wouldn't be the worst thing for this fund to do after the giant ramp up rally.
BND (Bonds / F-fund) was up a bit as it gets squeezed between some rising support from the trading channel, and descending resistance, which is the 200-day moving average. The trend is up, but are bonds due for a breather?
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. 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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Before I forget, today is a quadruple witching expiration day for futures, stocks and index options, so getting whippy unusual action is par for the course. But throw in what we have gone through this week with the CPI, interest rate hike, and yesterday's major sell off, and who knows what they'll throw at us today?
The dollar popped higher which tends to put pressure on stock prices. It hasn't broken above any resistance yet and we actually could know pretty quickly if it is going to roll back over as it backed off from the 200-day moving average yesterday after filling Tuesday's open gap.
The yield on the 10-year was down again and the bear flags continue to form. Why would yields be falling if the Fed is still raising interest rates? It's generally a bet on a weaker economic outlook and, as I mentioned above, perhaps a safe haven while stocks stumble.
The next couple of weeks are not completely about the bullish holiday seasonality, but it is certainly going to play a role. Whether stocks are doing well or not in a given year, there does tend to be a period of strength at some point in the final couple of weeks in December, and into the first couple of days into January. You don't hear about this as much, but I have noticed over the years that what happens during the week between Christmas and New Years isn't always bullish but rather it has a tendency to flip direction for several days rather than just move in one direction. It's not exact, but let's take a look at some examples from the last five years to see what I mean.
Again, not always, but if the week before Christmas is down, there's a pretty good chance that the week after will be up, and vice versa.
Even during the prior two major bear markets in 2008 and 2000 we saw similar action. 2001 was also part f the bear market and though it is not shown, the S&P 500 was up almost every day during the final two weeks of that year.
So seasonality, while not normally a primary indicator, will play a major role around these next two major holidays.
Here's that old (1950 - 2011) chart of the performance of the S&P surrounding Christmas Day. There's a lot of green in there with most of it between Christmas and New Year's Day, so that's a little different. But as we covered above, in more recent years it's more of a back and forth.
Chart provided courtesy of www.sentimentrader.com
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: AutoTracler - How to get started
The S&P 500 (C-fund) gapped down yesterday with its post Fed hangover. The chart looks questionable but I might feel a lot more bearish if we weren't heading into the holidays. Not that stocks can't sell off next week. Take a look at the 2018 chart up above when the market tanked right through Christmas Eve, but that happened to be the low of a major decline that year, and the week after Christmas was explosive to the upside. So the question for the next two weeks is, which one of those open gaps (the red rectangles) gets filled first? There's a case that can be made that the green lines are part of a bull flag, but there's no clear flag pole. That 3900 level has been an important area for several months now.
The DWCPF (S-fund) nearly filled in its open gap from November as it fell below the 20 and 50-day EMAs, which is not a good sign, but there is a lot converging support near 1600 which looks to be a make or break area. It has that bull flag thing going on here as well, but not much of a flag pole so it's questionable.
The EFA / I-fund has been the leader over the last couple of months but yesterday a strong dollar pushed it below some key support and it may look to test that 200-day EMA, which wouldn't be the worst thing for this fund to do after the giant ramp up rally.
BND (Bonds / F-fund) was up a bit as it gets squeezed between some rising support from the trading channel, and descending resistance, which is the 200-day moving average. The trend is up, but are bonds due for a breather?
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. 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.
