Stocks rebounded on Wednesday after Tuesday's sell off. The gains were healthy although they weren't enough to gain back all of Tuesday's losses, but the highs did fill in some open gaps on the charts. The Dow gained a modest 76-points, or 0.20%, while the S&P 500 and Nasdaq each gained about a half of a percent. Small caps outperformed the large caps, and the decline in the dollar helped the I-fund lead the way with a gain over 1%. Bonds rallied again on another drop in yields.
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What a difference a day makes and we're seeing a definite pattern in recent months with one or two day shakeouts that rebound quickly, and that is keeping investors on their toes and making them a little uncomfortable, which may keep the market climbing that wall of worry. However, the action yesterday does have more work to do as Tuesday's gaps were filled but the indices really didn't do much more than that. I'll use the S-fund as an example:
DWCPF (S-fund) was up early, filled Tuesday's open gap, then flipped over again. Yes, it gained a solid 0.87% on the day, but without further upside, filling the gaps and reversing could be a troubling development. It means that the folks who owned DWCPF at Tuesday's close near 2040, were happy to sell once it got back to that price on Wednesday. It could certainly rally again today, but without recapturing and holding above 2040, the bears could make a more aggressive move. On the bullish side, the gains did put it back above the old resistance line (orange dashed line.)
The 10-year Treasury Yield was down again - possibly the catalyst for the small caps outperforming the large caps yesterday - and as I mentioned yesterday, "Sometimes the first test of a major moving average will hold before breaking through in the following days." Yesterday it did fall below, and close below, the 200-day EMA, after holding on Tuesday. Open gaps above and below could justify a short-term move in either direction, so if you are considering buying or selling the F-fund, the short-term view is a little murky.
BND (Bonds / F-fund) had another good day and that added to the breakout that began late last week. Again, open gaps are above and below but as long as this holds above about 72, I think dips can be bought. Any decline below 71.80 and the chart would get toxic again.
The dollar was down again yesterday and this time it broke below the 20-day EMA that it has been clinging to for a couple of weeks. The 50-day EMA is being tested now, and that has been a good support and resistance levels for this chart, depending on whether it is above of below that average. We do have what looks like bull flag formed, so the downtrend may not last.
The longer term chart shows the 50-day EMA holding in a similar situation back in November. We saw a bounce off the 50-day EMA, but that bounce failed a week or so later.
Why it matters. The EFA (I-fund) loves a weak dollar and we can see that it has recently broken out to new highs. So if the UUP bull flag breaks out to the upside, this EFA chart may rollover again. If UUP breaks down like it did in November, the I-fund could continue to make new highs, or at least outperform US stocks.
Yesterday the Fed hinted at interest cuts later in the year but offered nothing concrete about the near-term. Democrats in congress were imploring Powell to cut rates. Yesterday California Democrat Brad Sherman said to Fed Chair Jerome Powell, “My goal here is to convince you to cut more and sooner." Meanwhile Republicans were praising Powell for not cutting yet and waiting until we have more evidence that inflation is behind us.
It is not uncommon for the Fed to move rates during an election year, but it would seem that waiting until later in the year would have more of an impact on the November elections since it is a big market mover. Interest rate moves by the Fed during an election have had predictable results in recent decades. If interest rates are cut in an election year, democrats tend to do better than when they are raised.
We get the February Jobs Report tomorrow morning and estimates are looking for a gain of about 200,000 jobs. That's after the anomalous January report that doubled estimates with 353,000 jobs were created. The unemployment rate is expected to remain 3.7%.
The S&P 500 (C-fund) bounced back from Tuesday's sell off, filled its open gap, then pulled back again and closed back below the gap. This isn't the worst thing that could have happened, but the longer it holds below that gap, the more suspect yesterday's rally gets. The trend is up and buying these types of dips has been working all year, but a 3% to 5% pullback is probably overdue.
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
For more info our other premium services, please go here... www.tsptalk.com/premiums.html Daily Market Commentary Archives
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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What a difference a day makes and we're seeing a definite pattern in recent months with one or two day shakeouts that rebound quickly, and that is keeping investors on their toes and making them a little uncomfortable, which may keep the market climbing that wall of worry. However, the action yesterday does have more work to do as Tuesday's gaps were filled but the indices really didn't do much more than that. I'll use the S-fund as an example:
DWCPF (S-fund) was up early, filled Tuesday's open gap, then flipped over again. Yes, it gained a solid 0.87% on the day, but without further upside, filling the gaps and reversing could be a troubling development. It means that the folks who owned DWCPF at Tuesday's close near 2040, were happy to sell once it got back to that price on Wednesday. It could certainly rally again today, but without recapturing and holding above 2040, the bears could make a more aggressive move. On the bullish side, the gains did put it back above the old resistance line (orange dashed line.)
The 10-year Treasury Yield was down again - possibly the catalyst for the small caps outperforming the large caps yesterday - and as I mentioned yesterday, "Sometimes the first test of a major moving average will hold before breaking through in the following days." Yesterday it did fall below, and close below, the 200-day EMA, after holding on Tuesday. Open gaps above and below could justify a short-term move in either direction, so if you are considering buying or selling the F-fund, the short-term view is a little murky.
BND (Bonds / F-fund) had another good day and that added to the breakout that began late last week. Again, open gaps are above and below but as long as this holds above about 72, I think dips can be bought. Any decline below 71.80 and the chart would get toxic again.
The dollar was down again yesterday and this time it broke below the 20-day EMA that it has been clinging to for a couple of weeks. The 50-day EMA is being tested now, and that has been a good support and resistance levels for this chart, depending on whether it is above of below that average. We do have what looks like bull flag formed, so the downtrend may not last.
The longer term chart shows the 50-day EMA holding in a similar situation back in November. We saw a bounce off the 50-day EMA, but that bounce failed a week or so later.
Why it matters. The EFA (I-fund) loves a weak dollar and we can see that it has recently broken out to new highs. So if the UUP bull flag breaks out to the upside, this EFA chart may rollover again. If UUP breaks down like it did in November, the I-fund could continue to make new highs, or at least outperform US stocks.
Yesterday the Fed hinted at interest cuts later in the year but offered nothing concrete about the near-term. Democrats in congress were imploring Powell to cut rates. Yesterday California Democrat Brad Sherman said to Fed Chair Jerome Powell, “My goal here is to convince you to cut more and sooner." Meanwhile Republicans were praising Powell for not cutting yet and waiting until we have more evidence that inflation is behind us.
It is not uncommon for the Fed to move rates during an election year, but it would seem that waiting until later in the year would have more of an impact on the November elections since it is a big market mover. Interest rate moves by the Fed during an election have had predictable results in recent decades. If interest rates are cut in an election year, democrats tend to do better than when they are raised.
We get the February Jobs Report tomorrow morning and estimates are looking for a gain of about 200,000 jobs. That's after the anomalous January report that doubled estimates with 353,000 jobs were created. The unemployment rate is expected to remain 3.7%.
The S&P 500 (C-fund) bounced back from Tuesday's sell off, filled its open gap, then pulled back again and closed back below the gap. This isn't the worst thing that could have happened, but the longer it holds below that gap, the more suspect yesterday's rally gets. The trend is up and buying these types of dips has been working all year, but a 3% to 5% pullback is probably overdue.
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
For more info our other premium services, please go here... www.tsptalk.com/premiums.html Daily Market Commentary Archives
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.
