Stocks were mixed on Friday with the Dow lagging and losing 63-points on the day, while the broader indices held onto some modest gains after bouncing back from a morning sell-off. It's not often that we see Amazon, Microsoft and Apple down on the day, yet see the rest of the market do fairly well. There has been a subtle shift out of tech and into more value type companies recently, but that happens occasionally, and the Nasdaq doesn't usually give up too easily. With earnings coming, it will be interesting to see which way investors go after these large companies report. Dip buyers have been jumping on these big stock stocks for years when they're down.
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We had live baseball games start over the weekend and that was a positive psychological sign and welcomed site. But you just had to look at the completely empty stadiums to remember that we're not back to normal yet, and states seem to be moving back into defensive mode as the virus spreads again. But the the stock market must be looking elsewhere.
Optimism versus pessimism. Reality versus perception - whatever we want to call it, the stock market has been holding up quite well after the giant rally off the March lows, yet if you watch the news you'd think the country is falling apart. When we see the stock market, or economically sensitive commodities like copper and lumber, racing higher, you'd think the economy is heading in the right direction, but...
... when we look at market sentiment (and there are many ways to do that) we see in the AAII Sentiment Survey that investors are about as bearish as they were back near the March lows (#2). That's quite incredible. There were only 31% of respondents of last week's AAII survey saying they were bullish, while 45% said they were bearish. In contrast, at point #1 below, inventors were very happy with the market as stocks were at all time highs just before the pandemic started. Back then there were almost twice as many saying they were bullish versus bearish.
We call these "dumb money" indicators, and the theory behind that is that investors tend to be wrong near market extremes. As I said above, much if this bearish sentiment probably has to do with the constant barrage of negative news that we see all around us. Yet the stocks market seems to be dismissing the "noise" and chugging right along, whether investors want to come along for the ride or not.
There certainly are some concerns out there, but as we've heard for many years, the stocks market tends to climb a wall of worry. Each time we've seen down days triggered by negative news headlines, the dip buyers have continued to show up.
This week starts a heavy load of earnings reports and the seasonality chart starts to get a lot more bearish this time of July, partially due to the tendency to see a "sell the news" reactions to the release of earnings reports. However expectations are already quite low, so perhaps that won't be an issue this year?
The S&P 500 (C-fund) touched that June high again on Friday making it three times last week without a breakout. It looks like it may be getting ready to bust through, but more churning below resistance during earnings week wouldn't be a surprise either. With so many investors still bearish, the pain trade (the trade that would dish out the most pain to investors) would probably be a big breakout toward the February highs, so I'm not ruling that out.
The weekly chart shows that the old resistance line, which was the top of that long trading range, held as support last week, and we saw the highest weekly close since before the pandemic. We still see that large open gap from the COVID plunge in February, and that could be the next target if that daily chart above does breakout above the June high.
The DWCPF (S-fund) seems to be doing just fine, but the 1490 area looks like it could be a tough area to break through. It has been consolidating for over a month now so if it can break that resistance, it could be explosive.
The Dow Transportation Index has come back to life since breaking back above that 200-day EMA. The longer-term descending resistance line was broken last week, and now the psychological 10,000 level will be the next test. We do get a few big earnings reports from this group this week in airlines and railroad companies.
The EFA (I-fund) chart looks quite similar to the S-fund chart and the two have posted very similar returns over the last week, and month. If one breaks out, the other will likely follow.
The VIX came down sharply on Friday, which may be a bit of a surprise heading into the thick of earnings reports. 25.68 was the lowest close since the June 5 low.
BND (bond ETF) continues to amaze me how it just rides up that narrow trading channel. Obviously since the March lows in stocks, the stock market has performed better than bonds, but this consistent trend higher is surprising as investors are not selling bonds while stocks are rallying.
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
Thanks 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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[/TABLE]
We had live baseball games start over the weekend and that was a positive psychological sign and welcomed site. But you just had to look at the completely empty stadiums to remember that we're not back to normal yet, and states seem to be moving back into defensive mode as the virus spreads again. But the the stock market must be looking elsewhere.
Optimism versus pessimism. Reality versus perception - whatever we want to call it, the stock market has been holding up quite well after the giant rally off the March lows, yet if you watch the news you'd think the country is falling apart. When we see the stock market, or economically sensitive commodities like copper and lumber, racing higher, you'd think the economy is heading in the right direction, but...
... when we look at market sentiment (and there are many ways to do that) we see in the AAII Sentiment Survey that investors are about as bearish as they were back near the March lows (#2). That's quite incredible. There were only 31% of respondents of last week's AAII survey saying they were bullish, while 45% said they were bearish. In contrast, at point #1 below, inventors were very happy with the market as stocks were at all time highs just before the pandemic started. Back then there were almost twice as many saying they were bullish versus bearish.
We call these "dumb money" indicators, and the theory behind that is that investors tend to be wrong near market extremes. As I said above, much if this bearish sentiment probably has to do with the constant barrage of negative news that we see all around us. Yet the stocks market seems to be dismissing the "noise" and chugging right along, whether investors want to come along for the ride or not.
There certainly are some concerns out there, but as we've heard for many years, the stocks market tends to climb a wall of worry. Each time we've seen down days triggered by negative news headlines, the dip buyers have continued to show up.
This week starts a heavy load of earnings reports and the seasonality chart starts to get a lot more bearish this time of July, partially due to the tendency to see a "sell the news" reactions to the release of earnings reports. However expectations are already quite low, so perhaps that won't be an issue this year?
The S&P 500 (C-fund) touched that June high again on Friday making it three times last week without a breakout. It looks like it may be getting ready to bust through, but more churning below resistance during earnings week wouldn't be a surprise either. With so many investors still bearish, the pain trade (the trade that would dish out the most pain to investors) would probably be a big breakout toward the February highs, so I'm not ruling that out.
The weekly chart shows that the old resistance line, which was the top of that long trading range, held as support last week, and we saw the highest weekly close since before the pandemic. We still see that large open gap from the COVID plunge in February, and that could be the next target if that daily chart above does breakout above the June high.
The DWCPF (S-fund) seems to be doing just fine, but the 1490 area looks like it could be a tough area to break through. It has been consolidating for over a month now so if it can break that resistance, it could be explosive.
The Dow Transportation Index has come back to life since breaking back above that 200-day EMA. The longer-term descending resistance line was broken last week, and now the psychological 10,000 level will be the next test. We do get a few big earnings reports from this group this week in airlines and railroad companies.
The EFA (I-fund) chart looks quite similar to the S-fund chart and the two have posted very similar returns over the last week, and month. If one breaks out, the other will likely follow.
The VIX came down sharply on Friday, which may be a bit of a surprise heading into the thick of earnings reports. 25.68 was the lowest close since the June 5 low.
BND (bond ETF) continues to amaze me how it just rides up that narrow trading channel. Obviously since the March lows in stocks, the stock market has performed better than bonds, but this consistent trend higher is surprising as investors are not selling bonds while stocks are rallying.
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
Thanks 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
