Stocks sold off yesterday with the S&P 500 having its worst day since late 2022, and it had been 356 trading days since the last 2% loss. The Dow was down 500-points, which was only half the loss percentage-wise, but it was the big tech Nasdaq that was hurt the most with a painful 3.64% decline. Small caps tried to hold up but eventually fell in sympathy with tech.
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Big losses from Tesla and Alphabet (GOOG) set the tone yesterday as the high flying tech stocks that have led the stock market higher this year is having a little air let out of its balloon. The Nasdaq 100 is now down about 8% from the all time highs made just two weeks ago, and Nvidia is already down 19% from its June 11 high, which only takes it back to its late May price, but if investors were waiting for an opportunity, will they take it or has fear taken over?
The chart looks quite compelling with that large bull flag forming. There was a similar formation earlier this year. Is it nearing a buy zone already, or is this toast?
Next week will be another big week for Magnificent 7 company earnings, but there was some positive results after the bell yesterday from IBM and Chipolte beating and rallying after hours, although Chipolte gave up an early 8% pop higher after the conference call. These are not major market movers like the Mag 7 stocks are, but maybe it will help stop the downside momentum.
Speaking of momentum, the small caps were holding up fairly well most of the day yesterday compared to the large caps, which drifted lower all day long, but someone opened up the trap door at about 2 PM ET and the small caps' losses (using the Russell 2000 ETF) caught up to the losses in the large caps. So, the rotation trade took a few hours off yesterday afternoon.
The likely catalyst for that was the 10-year Treasury Yield and the dollar, both of which were down in early trading, but they both came on strong to close near their highs of the day, and pushed the S and I-funds off their outperforming porch. It used to be common to see bonds rally (yields down) when we see a sell off like we saw in stocks yesterday, but something changed midday.
I'm revisiting this chart election year seasonality chart again since a lot has changed with Biden leaving the race. Having no incumbent in there changed the outlook. However, if we go to the late July area noted by the vertical red line, you can see that stocks tend to move up in August during an election year, regardless.
Now the bad news; When there is no incumbent the average return through July during an election year is near 0%. This year the S&P 500 is already up almost 14%, even after the recent decline.
Sorry, I mentioned this yesterday but I was off a day. It is today that we'll get an update to the second quarter GDP estimate. The estimates are looking for a gain of 1.9% to 2.3%, so that quite a spread and no sign of a recession again.
On Friday we get the June PCE Prices report. Next week will be quite a busy one with big tech reporting earnings, a jobs report on Friday, and an FOMC meeting ending on Wednesday, so the volatility should continue.
The S&P 500 (C-fund) broke down big time yesterday as it fell through support and down to the 50 day moving averages (both the simple and exponential averages.) There are now two open gaps above, and one below. This would be a good place for a bull market pullback to find support, but the momentum may be too much for it to stop on a dime. The open gap below 5400 may be the target. So far this is a typical pullback in a bull market, although it is nearing correction territory, which is normal and happens once or twice a year on average, but it is not fun for the bulls when it happens, unless you can take advantage of the lower prices.
DWCPF (S-fund) showed some promise early yesterday as it was holding up well while the S&P 500 was selling off, but by the close the selling bled over into the small caps. There are open gaps below, but is that a bull flag?
The EFA (I-fund) was down but held up better than the US funds. It too is flirting with must hold support near 79, then 78.
BND (bonds / F-fund) pulled back and finally filled in that open gap we've been watching for a couple of weeks. There are two more gaps below and Friday's PCE report could determine if the open gaps below get filled or not.
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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Big losses from Tesla and Alphabet (GOOG) set the tone yesterday as the high flying tech stocks that have led the stock market higher this year is having a little air let out of its balloon. The Nasdaq 100 is now down about 8% from the all time highs made just two weeks ago, and Nvidia is already down 19% from its June 11 high, which only takes it back to its late May price, but if investors were waiting for an opportunity, will they take it or has fear taken over?
The chart looks quite compelling with that large bull flag forming. There was a similar formation earlier this year. Is it nearing a buy zone already, or is this toast?

Next week will be another big week for Magnificent 7 company earnings, but there was some positive results after the bell yesterday from IBM and Chipolte beating and rallying after hours, although Chipolte gave up an early 8% pop higher after the conference call. These are not major market movers like the Mag 7 stocks are, but maybe it will help stop the downside momentum.
Speaking of momentum, the small caps were holding up fairly well most of the day yesterday compared to the large caps, which drifted lower all day long, but someone opened up the trap door at about 2 PM ET and the small caps' losses (using the Russell 2000 ETF) caught up to the losses in the large caps. So, the rotation trade took a few hours off yesterday afternoon.

The likely catalyst for that was the 10-year Treasury Yield and the dollar, both of which were down in early trading, but they both came on strong to close near their highs of the day, and pushed the S and I-funds off their outperforming porch. It used to be common to see bonds rally (yields down) when we see a sell off like we saw in stocks yesterday, but something changed midday.

I'm revisiting this chart election year seasonality chart again since a lot has changed with Biden leaving the race. Having no incumbent in there changed the outlook. However, if we go to the late July area noted by the vertical red line, you can see that stocks tend to move up in August during an election year, regardless.

Now the bad news; When there is no incumbent the average return through July during an election year is near 0%. This year the S&P 500 is already up almost 14%, even after the recent decline.
Sorry, I mentioned this yesterday but I was off a day. It is today that we'll get an update to the second quarter GDP estimate. The estimates are looking for a gain of 1.9% to 2.3%, so that quite a spread and no sign of a recession again.
On Friday we get the June PCE Prices report. Next week will be quite a busy one with big tech reporting earnings, a jobs report on Friday, and an FOMC meeting ending on Wednesday, so the volatility should continue.
The S&P 500 (C-fund) broke down big time yesterday as it fell through support and down to the 50 day moving averages (both the simple and exponential averages.) There are now two open gaps above, and one below. This would be a good place for a bull market pullback to find support, but the momentum may be too much for it to stop on a dime. The open gap below 5400 may be the target. So far this is a typical pullback in a bull market, although it is nearing correction territory, which is normal and happens once or twice a year on average, but it is not fun for the bulls when it happens, unless you can take advantage of the lower prices.

DWCPF (S-fund) showed some promise early yesterday as it was holding up well while the S&P 500 was selling off, but by the close the selling bled over into the small caps. There are open gaps below, but is that a bull flag?

The EFA (I-fund) was down but held up better than the US funds. It too is flirting with must hold support near 79, then 78.

BND (bonds / F-fund) pulled back and finally filled in that open gap we've been watching for a couple of weeks. There are two more gaps below and Friday's PCE report could determine if the open gaps below get filled or not.

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.