The glass half full outlook on yesterday's action was that the S&P 500 and Nasdaq both closed at new all-time highs. A reality check tells us that they both gave up big early gains. This is not a game changer yet, but the action was poor and one of the catalysts was a positive reversal in yields and a midday bond auction did not go well, accelerating the reversals in both stocks and bonds. The dollar was down on the day but it too reversed off deeper morning losses to close at its highs of the day, adding to the pressure on the stock market.
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The final numbers on Wednesday are not a good reflection of how underwhelming the action was yesterday. A big early rally shrunk on the S&P 500 and Nasdaq, and the small caps were hit even harder as solid gains turned into meaningful losses.
Internally you can see that advancing stocks and trading volume were a lot lower than the declining numbers, which is usually a good indication that the broader small caps indices were down. The New highs vs. New Lows was solidly positive, but that was because the S&P 500 and Nasdaq were up big early and at new highs. As I said, they both closed at a new high but a gain of a penny in these indices would have put them at a new high.
The recent rally in yields and the dollar have been a headwind for stocks since they both bottomed in late December. The strength in the S&P 500 this year has been impressive considering the rally in these two charts below over the last month and of course the Mag 7 stocks have been a good reason, but small caps and the I-fund are more vulnerable to the strength in the two chart. That is why the S and I-funds are down this year.
The market is in an interesting situation with the S&P 500 at all time highs yet the broader indices are still struggling and sentiment flip flops between nervous excitement because of the Magnificent 7 lifting the indices, and outright bearishness when the broader market lags like yesterday. The market loves to climb a wall of worry but the indices are also quite stretched and whether they have consolidated enough in January is debatable.
Earnings next week could trigger more buying, or it could trigger a sell the news reaction, even if the news is good. I think the action in the bond market and the dollar will tell the best story and any movement in stocks after the release of earnings that moves counter to what bonds and the dollar are telling us, may set up opportunities. Whether that will be buying or selling opportunities, we don't know yet.
Tesla reported after the bell yesterday and it missed estimates and was trading down 3% to 4% in after hours trading.
We will get the 4th quarter GDP (economic growth) this morning and estimates are looking for growth of about 2.0% to 2.2%. That's compared to the Q3 growth of 4.9%, so it's less than half but still very much positive. Estimates are all over the map for 2024 GDP but it would have to go negative for two consecutive quarters before it is considered a recession, which is still on the table.
Tomorrow the key inflation data, PCE Prices report, comes out and it is the Fed's favorite indication of inflation so bonds and the dollar will be on the move, which means stocks could be moving as well, if the report is not inline with estimates. This is more rear-view mirror data as it is December's report. The November report was -0.1%, meaning prices went down, but estimates are closer to +0.2% for December.
The S&P 500 (C-fund) was up big really, reversed down and closed at the lows of the day. That's not great action and often precedes a pullback, but there is some support at 4850 and then 4800, so we'll just have to see if buyers show up in those areas. 4750 looks like a line in the sand for the short-term uptrend, although trading above the 50-day EMA is still a bullish look.
DWCPF (S-fund) hit Tuesday's high and reversed down again after hitting the bottom of the open gap from January 2. The Russell 2000 actually filled a similar open gap yesterday and reversed, which is more typical and a cleaner look, but this is what it is, and it looks like it wants to fill the open gap created on Monday, which would test other support levels.
EFA (I-fund) held onto a decent gain as the losses in the US and the rally in the dollar came late yesterday when most of the overseas markets had closed already. There are always open gaps to deal with on this chart and you can see that most of them get filled fairly quickly (the blue boxes), so the gap up from yesterday may be looking to get filled before the end of this week, and that could be an area of support.
A closer look at the EFA shows the breakout above the red bullish flag, and a test of that flag would fill the open gap, but it has to hold otherwise it will be another failed breakout.
BND (F-fund) was up, then down yesterday and this is what was guiding the stock market after a poor bond auction sent yields higher and stocks are in no mood for higher yields right now.
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
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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The final numbers on Wednesday are not a good reflection of how underwhelming the action was yesterday. A big early rally shrunk on the S&P 500 and Nasdaq, and the small caps were hit even harder as solid gains turned into meaningful losses.
Internally you can see that advancing stocks and trading volume were a lot lower than the declining numbers, which is usually a good indication that the broader small caps indices were down. The New highs vs. New Lows was solidly positive, but that was because the S&P 500 and Nasdaq were up big early and at new highs. As I said, they both closed at a new high but a gain of a penny in these indices would have put them at a new high.
The recent rally in yields and the dollar have been a headwind for stocks since they both bottomed in late December. The strength in the S&P 500 this year has been impressive considering the rally in these two charts below over the last month and of course the Mag 7 stocks have been a good reason, but small caps and the I-fund are more vulnerable to the strength in the two chart. That is why the S and I-funds are down this year.
The market is in an interesting situation with the S&P 500 at all time highs yet the broader indices are still struggling and sentiment flip flops between nervous excitement because of the Magnificent 7 lifting the indices, and outright bearishness when the broader market lags like yesterday. The market loves to climb a wall of worry but the indices are also quite stretched and whether they have consolidated enough in January is debatable.
Earnings next week could trigger more buying, or it could trigger a sell the news reaction, even if the news is good. I think the action in the bond market and the dollar will tell the best story and any movement in stocks after the release of earnings that moves counter to what bonds and the dollar are telling us, may set up opportunities. Whether that will be buying or selling opportunities, we don't know yet.
Tesla reported after the bell yesterday and it missed estimates and was trading down 3% to 4% in after hours trading.
We will get the 4th quarter GDP (economic growth) this morning and estimates are looking for growth of about 2.0% to 2.2%. That's compared to the Q3 growth of 4.9%, so it's less than half but still very much positive. Estimates are all over the map for 2024 GDP but it would have to go negative for two consecutive quarters before it is considered a recession, which is still on the table.
Tomorrow the key inflation data, PCE Prices report, comes out and it is the Fed's favorite indication of inflation so bonds and the dollar will be on the move, which means stocks could be moving as well, if the report is not inline with estimates. This is more rear-view mirror data as it is December's report. The November report was -0.1%, meaning prices went down, but estimates are closer to +0.2% for December.
The S&P 500 (C-fund) was up big really, reversed down and closed at the lows of the day. That's not great action and often precedes a pullback, but there is some support at 4850 and then 4800, so we'll just have to see if buyers show up in those areas. 4750 looks like a line in the sand for the short-term uptrend, although trading above the 50-day EMA is still a bullish look.
DWCPF (S-fund) hit Tuesday's high and reversed down again after hitting the bottom of the open gap from January 2. The Russell 2000 actually filled a similar open gap yesterday and reversed, which is more typical and a cleaner look, but this is what it is, and it looks like it wants to fill the open gap created on Monday, which would test other support levels.
EFA (I-fund) held onto a decent gain as the losses in the US and the rally in the dollar came late yesterday when most of the overseas markets had closed already. There are always open gaps to deal with on this chart and you can see that most of them get filled fairly quickly (the blue boxes), so the gap up from yesterday may be looking to get filled before the end of this week, and that could be an area of support.
A closer look at the EFA shows the breakout above the red bullish flag, and a test of that flag would fill the open gap, but it has to hold otherwise it will be another failed breakout.
BND (F-fund) was up, then down yesterday and this is what was guiding the stock market after a poor bond auction sent yields higher and stocks are in no mood for higher yields right now.
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
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.
