Stocks opened slightly higher on Monday, then chopped around between positive and negative territory before a push higher in the afternoon gave the bulls a solid victory as we head into Election Day. The Dow gained 424-points and led the way percentage-wise. The market leading Transportation Index also had a very good day while small caps and the I-fund lagged a bit. Yields moved higher and the 10-year Treasury Yield closed in on a new high, and that sent bond prices and the F-fund lower.
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There's a lot of finagling going on right now as the big money firms try to get us to lean one way or the other in front of this week's catalysts - the election results and Thursday's CPI report. We saw some indices flirting with getting back above their 50-day EMA, and perhaps surprisingly only the I-fund is above its 50-day average, while the C and S funds remain just below theirs. The S&P 500's high yesterday was basically right below the average so it will be interesting to see if they can tack on more upside, or if yesterday's rally was a set up to pull the rug out from under those who did some buying during this recent two day rally.
With all the talk of the Fed continuing to send rates higher, pressuring the jobs market and the stock market, plus the inverted yield curve that put the economy on alert for a recession next year, should investors continue to try to buy into this stock market or should they grab the guaranteed 4.73% annual return that the 2-year Treasury is currently offering?
The 10-year Treasury Yield was up again and it is racing toward the mid-October highs again, making it much more surprising, and suspicious, that stocks have been bouncing. It seems like the direction of the dollar is having more of an impact in recent days on the stock market because the dollar was down again.
A weaker dollar tends to bump prices up and after last week's fake out above the bull flag, it has tumbled back below its 50-day EMA. Bull flags tend to break to the upside so I am again suspicious of this recent move lower in the dollar.
The VIX (Volatility Index) has been falling for weeks now and it was down again yesterday, although it did not go as low as Friday's jobs report volatile day. But there is something that looks familiar on the VIX...
This chart below of the VIX during the 2008 bear market shows some very similar action from about mid-July of 2007 until the fall of 2008 when things changed in a hurry. Both times it traded in a range between the mid-teens and the low 30's which lasted about a year. I drew the arrow where I think the comparison is now and of course nothing would ever be exactly the same, but you can see that there was a tremendous spike in volatility just after it pulled back to low to mid-20's back in 2008. Will the election results and / or the CPI trigger another 2008-like spike?
The CPI report may have more of an impact than the election since the market has had weeks to price in what they believe the election results will be, so unless there are some big surprises, it may be the CPI on Thursday that shakes things up.
As far as seasonality goes, the historical post midterm market action is fairly strong through the end of the year, but interestingly it is mixed to weak after the election up until about Thanksgiving Day. Looking at the three relevant situations for this year: 1st term midterm, Democratic president midterm, and 2nd year Democratic President, it looks like we have two suggesting weak results, and one positive.
I haven't even mentioned the diesel fuel crisis that may or may not get worse. I can't imagine what would happen to the economy if the country runs out, or even runs low enough to further impact the supply chain.
Admin Note: I haven't seen anything on the TSP website yet, but Friday is a Federal Holiday and I am assuming that the TSP will be closed and not processing transactions. If that is the case I won't be posting a commentary on Friday, nor will the premium services be updated.
The S&P 500 (C-fund) rallied up to its 50-day EMA yesterday and stopped. However it did the same thing on October 24 and just jumped above the average during the next trading day, so we'll see. The chart is still in a bear flag suggesting more weakness, but I suppose the election and or the CPI could change everything - or not. The chart is supposed to be the road map, but there is still some wiggle room on both sides inside that flag.
The DWCPF (small caps / S-fund) chart looks virtually the same as the S&P 500 so I expect them to resolve themselves quite similarly.
The EFA (I-fund) followed up on Friday's 4% gain with another modest gain. This one pushed it above the bear flag, although just slightly. You can see that the UUP chart of the dollar is doing the opposite, and that's just how it is likely going to be. That bull flag "should" break upward on UUP.
BND (bonds / F-fund) was down sharply as the yields continue to creep higher and near recent highs.
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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There's a lot of finagling going on right now as the big money firms try to get us to lean one way or the other in front of this week's catalysts - the election results and Thursday's CPI report. We saw some indices flirting with getting back above their 50-day EMA, and perhaps surprisingly only the I-fund is above its 50-day average, while the C and S funds remain just below theirs. The S&P 500's high yesterday was basically right below the average so it will be interesting to see if they can tack on more upside, or if yesterday's rally was a set up to pull the rug out from under those who did some buying during this recent two day rally.
With all the talk of the Fed continuing to send rates higher, pressuring the jobs market and the stock market, plus the inverted yield curve that put the economy on alert for a recession next year, should investors continue to try to buy into this stock market or should they grab the guaranteed 4.73% annual return that the 2-year Treasury is currently offering?
The 10-year Treasury Yield was up again and it is racing toward the mid-October highs again, making it much more surprising, and suspicious, that stocks have been bouncing. It seems like the direction of the dollar is having more of an impact in recent days on the stock market because the dollar was down again.
A weaker dollar tends to bump prices up and after last week's fake out above the bull flag, it has tumbled back below its 50-day EMA. Bull flags tend to break to the upside so I am again suspicious of this recent move lower in the dollar.
The VIX (Volatility Index) has been falling for weeks now and it was down again yesterday, although it did not go as low as Friday's jobs report volatile day. But there is something that looks familiar on the VIX...
This chart below of the VIX during the 2008 bear market shows some very similar action from about mid-July of 2007 until the fall of 2008 when things changed in a hurry. Both times it traded in a range between the mid-teens and the low 30's which lasted about a year. I drew the arrow where I think the comparison is now and of course nothing would ever be exactly the same, but you can see that there was a tremendous spike in volatility just after it pulled back to low to mid-20's back in 2008. Will the election results and / or the CPI trigger another 2008-like spike?
The CPI report may have more of an impact than the election since the market has had weeks to price in what they believe the election results will be, so unless there are some big surprises, it may be the CPI on Thursday that shakes things up.
As far as seasonality goes, the historical post midterm market action is fairly strong through the end of the year, but interestingly it is mixed to weak after the election up until about Thanksgiving Day. Looking at the three relevant situations for this year: 1st term midterm, Democratic president midterm, and 2nd year Democratic President, it looks like we have two suggesting weak results, and one positive.
I haven't even mentioned the diesel fuel crisis that may or may not get worse. I can't imagine what would happen to the economy if the country runs out, or even runs low enough to further impact the supply chain.
Admin Note: I haven't seen anything on the TSP website yet, but Friday is a Federal Holiday and I am assuming that the TSP will be closed and not processing transactions. If that is the case I won't be posting a commentary on Friday, nor will the premium services be updated.
The S&P 500 (C-fund) rallied up to its 50-day EMA yesterday and stopped. However it did the same thing on October 24 and just jumped above the average during the next trading day, so we'll see. The chart is still in a bear flag suggesting more weakness, but I suppose the election and or the CPI could change everything - or not. The chart is supposed to be the road map, but there is still some wiggle room on both sides inside that flag.
The DWCPF (small caps / S-fund) chart looks virtually the same as the S&P 500 so I expect them to resolve themselves quite similarly.
The EFA (I-fund) followed up on Friday's 4% gain with another modest gain. This one pushed it above the bear flag, although just slightly. You can see that the UUP chart of the dollar is doing the opposite, and that's just how it is likely going to be. That bull flag "should" break upward on UUP.
BND (bonds / F-fund) was down sharply as the yields continue to creep higher and near recent highs.
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.
