Stocks opened sharply lower on Thursday, and once again a failed midday rally led to a sell off and a close near the lows of the day, which was down near the 200-day moving average on the S&P 500. Midcaps underperformed making the S-fund lag badly, and bonds were down a bit after another modest pullback in yields. Stocks are no longer triggered by the direction of yields. It's more emotion over tariffs and potential economic growth issues.
We're going to keep this very simple today and see where the jobs report takes us. There's probably three real possibilities:
- The report is favorable and stocks (S&P 500 in this case) bounces off the convenient support of the 200-day moving average
- Stocks sell off early, break support and we get a little panic selling followed by reversal either in the afternoon, or early next week
- The report sends stocks below key support and the already negative environment gets outright bearish (pullback and correction turn into a bear market.)
Here's some charts that will show other similar situations. I left out the 2020 and 2022 bear markets. Unless we are not being told the whole story, I wholeheartedly believe this tariff situation is NOT on the level of a global pandemic, nor the inflation situation of a couple of years ago. It's the market adjusting to a new situation. In other words, I expect this to be a run of the mill pullback / correction of magnitude of 5% to 10% like we saw in August of last year when yields plummeted during the unwinding of the Yen carry trade. An adjustment.
Here is the current S&P 500 chart. The low yesterday was 5711. The 200-day EMA is currently 5710. The index has retraced the breakout candlestick from Election Day. This is a good place for a pause in the downside. Anything else breaks the chart.
This chart goes back to the end of the 2022 bear market and it show the last time the S&P 500 tested the 200-day EMA during that Yen carry trade situation. Notice the PMO momentum indicator is now about where it was in August, before the reversal. Maybe it would be too convenient to see see it play out the same way?
In the fall of 2023 the S&P 500 did break below the 200-day average a couple of times and that's the kind of sell off that really washes out even the most fervent bulls who finally capitulated and sell under the average before the reversal. It's panic. It's capitulation.
The 2022 bear market was the outbreak of troubling inflation complete with a 2/10 year yield curve inversion. As I said, I don't see the comparison yet, so let's go to the post Covid crash up to that pre-bear market peak. The 200-day EMA was tested once, maybe twice in all that time, although neither actually touched the average before rebounding.
And before that we did have a couple of more serious declines in 2015 and 2016 (not shown) that were triggered by economic concerns. The difference was that interest rates were near 0% already so the Fed had no ammunition to lower them to help the economy at the time. That's not an issue today with rates at 4.5%.
After that, stocks took off again and the bull market resumed but not without several tests of the 200-day average - most of which held, until we ran into Covid. The one pullback that didn't the 200 day average and got ugly was in late 2018. The Fed had been raising interest rates from near 0% in late 2015, to 2.5% in November of 2018, and that was the straw that broke the camel's back. Rates peaked there and eventually made their way back to 0% when Covid hit, but not before stocks tumbled.
So we're at some do or die levels, but even if we do take the "die" path, the indices are oversold enough, and some indicators are extreme enough, to expect some kind of meaningful relief rally soon enough. Maybe today, maybe next week. The question will be whether to sell that rally or not? History suggests this is a good spot to find bargains, but if stocks can't hold, we may be turning a corner.
Broadcom reported a strong earnings report after the bell sending the futures higher, but that's not what's on everyone's mind right now.
We'll get the February jobs report this (Friday) morning before the opening bell. Estimates are looking for a gain of 145,000 jobs and an unemployment rate of 4.0%.
DWCPF (S-fund) took major hit again yesterday, but ironically the Russell 2000 small caps index was down 1% less than the S-fund. It was the midcaps that were lagging yesterday. The chart tends to be more extreme on the up and down side, but this will likely resolve itself in the same direction as the S&P 500, and that analysis is above.
ACWX (the I-fund tracking index) was down yesterday but is just a day off Wednesday's closing high for the year.
BND (F-fund) was down slightly as yields moved up again but both yields and the BND chart are nearing possible reversal levels unless that gap below 72.75, which could happen if the jobs report throws us a surprise and send yields much higher. This charts moves up when yields go down.
Thanks so much for reading! Have a great weekend!
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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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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We're going to keep this very simple today and see where the jobs report takes us. There's probably three real possibilities:
- The report is favorable and stocks (S&P 500 in this case) bounces off the convenient support of the 200-day moving average
- Stocks sell off early, break support and we get a little panic selling followed by reversal either in the afternoon, or early next week
- The report sends stocks below key support and the already negative environment gets outright bearish (pullback and correction turn into a bear market.)
Here's some charts that will show other similar situations. I left out the 2020 and 2022 bear markets. Unless we are not being told the whole story, I wholeheartedly believe this tariff situation is NOT on the level of a global pandemic, nor the inflation situation of a couple of years ago. It's the market adjusting to a new situation. In other words, I expect this to be a run of the mill pullback / correction of magnitude of 5% to 10% like we saw in August of last year when yields plummeted during the unwinding of the Yen carry trade. An adjustment.
Here is the current S&P 500 chart. The low yesterday was 5711. The 200-day EMA is currently 5710. The index has retraced the breakout candlestick from Election Day. This is a good place for a pause in the downside. Anything else breaks the chart.
This chart goes back to the end of the 2022 bear market and it show the last time the S&P 500 tested the 200-day EMA during that Yen carry trade situation. Notice the PMO momentum indicator is now about where it was in August, before the reversal. Maybe it would be too convenient to see see it play out the same way?
In the fall of 2023 the S&P 500 did break below the 200-day average a couple of times and that's the kind of sell off that really washes out even the most fervent bulls who finally capitulated and sell under the average before the reversal. It's panic. It's capitulation.
The 2022 bear market was the outbreak of troubling inflation complete with a 2/10 year yield curve inversion. As I said, I don't see the comparison yet, so let's go to the post Covid crash up to that pre-bear market peak. The 200-day EMA was tested once, maybe twice in all that time, although neither actually touched the average before rebounding.
And before that we did have a couple of more serious declines in 2015 and 2016 (not shown) that were triggered by economic concerns. The difference was that interest rates were near 0% already so the Fed had no ammunition to lower them to help the economy at the time. That's not an issue today with rates at 4.5%.
After that, stocks took off again and the bull market resumed but not without several tests of the 200-day average - most of which held, until we ran into Covid. The one pullback that didn't the 200 day average and got ugly was in late 2018. The Fed had been raising interest rates from near 0% in late 2015, to 2.5% in November of 2018, and that was the straw that broke the camel's back. Rates peaked there and eventually made their way back to 0% when Covid hit, but not before stocks tumbled.
So we're at some do or die levels, but even if we do take the "die" path, the indices are oversold enough, and some indicators are extreme enough, to expect some kind of meaningful relief rally soon enough. Maybe today, maybe next week. The question will be whether to sell that rally or not? History suggests this is a good spot to find bargains, but if stocks can't hold, we may be turning a corner.
Broadcom reported a strong earnings report after the bell sending the futures higher, but that's not what's on everyone's mind right now.
We'll get the February jobs report this (Friday) morning before the opening bell. Estimates are looking for a gain of 145,000 jobs and an unemployment rate of 4.0%.
DWCPF (S-fund) took major hit again yesterday, but ironically the Russell 2000 small caps index was down 1% less than the S-fund. It was the midcaps that were lagging yesterday. The chart tends to be more extreme on the up and down side, but this will likely resolve itself in the same direction as the S&P 500, and that analysis is above.
ACWX (the I-fund tracking index) was down yesterday but is just a day off Wednesday's closing high for the year.
BND (F-fund) was down slightly as yields moved up again but both yields and the BND chart are nearing possible reversal levels unless that gap below 72.75, which could happen if the jobs report throws us a surprise and send yields much higher. This charts moves up when yields go down.
Thanks so much for reading! Have a great weekend!
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.
