The bulls came into yesterday looking for some upside follow thru, which has been tough to come by as recent Monday rallies have been repeatedly reversed during the rest of week over the last month or so. We came into the day expecting retail sales to be the catalyst, and they did come in strong sending yields higher, but that was overshadowed by economic concerns out of China, whether the reaction was overdone or not. We also had more bank downgrade warnings from the Fitch rating agency, and the net sum of it all was a sell off in stocks. Bonds made a new low as yields moved up again.
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So that's a lot of bad news coming in, just after the market had been pulling back, and it could be one of those interesting cases where the market reacted before the news came out. Of course there had been other concerns with the action in stocks like Apple and Microsoft, but now that the news is coming out, will we see a buy the news reaction after all of the sell the rumor action?
That doesn't seem likely but it is an options expiration week, and historically they are fairly bullish, with the week after expiration typically more bearish.
I found these quotes from the website sourced below...
"S&P 500 shows abnormal positive returns during the options expiration week. Only July and January show negative returns during the options expiration week, while April is the best month. Overall, there seems to be an options expiration week effect."
"While we see a positive options expiration week effect, the effect fails to continue into the following week. The average gain for the week after options expiration is lower than any random week, but the results vary monthly. Three months are particularly negative: February, June, and September. The latter is the worst – by far."
You can get the full article regarding options expiration trading here: https://www.quantifiedstrategies.com/the-option-expiration-week-effect/
So, it may not be too much of a stretch to see the market flip around this week as options traders battle for different target prices to keep their trades in the money.
The S&P 500 (C-fund) has been flirting with several layers of support, and it seems to be checking the boxes on the way down. First it hit the prior peak and filled an open gap from early July. Yesterday it came down to test the 50-day EMA (exponential moving average.)
It did close below its 50-day simple moving average (not shown), and that's being talked about on Wall Street, but I tend to use the exponential moving average and it did manage to hold above that level yesterday. It doesn't matter which you use. It only matters what is working on any given chart, at any given time, and as you can see here the EMA has been holding over the last several months.
The Nasdaq 100 (QQQ) - the large tech stock index that contains FAANG, MAGA, the Magnificent 7, whatever you want to call those big tech stocks that move the market - is also testing its 50-day EMA. It has been trading above it for months, and perhaps it needs a rest, but if it is going to hold above it, here is where it has to rally.
QQQ has been above its 50-day EMA for most of the year after moving above it in January, after spending much of 2022 below it.
A lot of the pressure on the major indices came from the pullback in Apple (and Microsoft), and it had dropped below its 50-day EMA a while back after reporting earnings, and in hindsight, that was a pretty good warning that the rest of the market might follow. Interestingly, Apple has been hugging its 100-day EMA recently. Yesterday was the first close below it, but only by 14 cents.
Next week Nvidia reports earnings and with that company's focus on the latest A-I technology hardware, it could overtake some of those FANG stocks as the stock to watch as the market leader.
The Yield on the 10-year Treasury was up yesterday but the spinning top formation and the top of the ascending channel could be indicating a pause or a pullback is coming, but clearly the trend in yields is up.
The longer-term chart shows it nearing last October's highs, perhaps triggering a double top pullback, but there is a little room for it to move higher before it hits that 4.3% high.
The dollar was basically flat after an early sell off. It also hit a double top this week and yesterday's pullback held at the July peak. I'd say this needs a rest but trends in currencies can go on for a while.
While not a part of the I-fund, China's economy is a major part of the global economy, and with its weaker than expected economic data reported yesterday, the Shanghai Index has been flirting with a breakdown and is now only up modestly for the year after giving most of the 2023 gains back. Not the the US economy depends on China, but it's just another cog in the US stocks market machine.
We went over the S&P 500 (C-fund) above so let's go right to the S-fund chart:
DWCPF (S-fund) was down sharply and easily fell through a bunch of support, which is concerning. I tend to look for a 3 to 5 day failure at support (or resistance ) before confirming, but that looked too easy for the bears to break below it. Of course it was headline driven and sometimes that can create a fake-out, but the bad news does seem to be piling on.
EFA (I-fund) also fell through support and again it looked too easy, but China's news did set the tone for the global economy. It was a sell first, ask questions later reaction but the question is how much does weakness in China really impact the rest of the world?
BND (Bonds / F-fund) made a new low and the chart looks broken. At some point we could get a snap back rally, and with the 10-year yield nearing overhead resistance, that could happen soon, but the long-term trend is down.
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.
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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So that's a lot of bad news coming in, just after the market had been pulling back, and it could be one of those interesting cases where the market reacted before the news came out. Of course there had been other concerns with the action in stocks like Apple and Microsoft, but now that the news is coming out, will we see a buy the news reaction after all of the sell the rumor action?
That doesn't seem likely but it is an options expiration week, and historically they are fairly bullish, with the week after expiration typically more bearish.
I found these quotes from the website sourced below...
"S&P 500 shows abnormal positive returns during the options expiration week. Only July and January show negative returns during the options expiration week, while April is the best month. Overall, there seems to be an options expiration week effect."
"While we see a positive options expiration week effect, the effect fails to continue into the following week. The average gain for the week after options expiration is lower than any random week, but the results vary monthly. Three months are particularly negative: February, June, and September. The latter is the worst – by far."
You can get the full article regarding options expiration trading here: https://www.quantifiedstrategies.com/the-option-expiration-week-effect/
So, it may not be too much of a stretch to see the market flip around this week as options traders battle for different target prices to keep their trades in the money.
The S&P 500 (C-fund) has been flirting with several layers of support, and it seems to be checking the boxes on the way down. First it hit the prior peak and filled an open gap from early July. Yesterday it came down to test the 50-day EMA (exponential moving average.)
It did close below its 50-day simple moving average (not shown), and that's being talked about on Wall Street, but I tend to use the exponential moving average and it did manage to hold above that level yesterday. It doesn't matter which you use. It only matters what is working on any given chart, at any given time, and as you can see here the EMA has been holding over the last several months.
The Nasdaq 100 (QQQ) - the large tech stock index that contains FAANG, MAGA, the Magnificent 7, whatever you want to call those big tech stocks that move the market - is also testing its 50-day EMA. It has been trading above it for months, and perhaps it needs a rest, but if it is going to hold above it, here is where it has to rally.
QQQ has been above its 50-day EMA for most of the year after moving above it in January, after spending much of 2022 below it.
A lot of the pressure on the major indices came from the pullback in Apple (and Microsoft), and it had dropped below its 50-day EMA a while back after reporting earnings, and in hindsight, that was a pretty good warning that the rest of the market might follow. Interestingly, Apple has been hugging its 100-day EMA recently. Yesterday was the first close below it, but only by 14 cents.
Next week Nvidia reports earnings and with that company's focus on the latest A-I technology hardware, it could overtake some of those FANG stocks as the stock to watch as the market leader.
The Yield on the 10-year Treasury was up yesterday but the spinning top formation and the top of the ascending channel could be indicating a pause or a pullback is coming, but clearly the trend in yields is up.
The longer-term chart shows it nearing last October's highs, perhaps triggering a double top pullback, but there is a little room for it to move higher before it hits that 4.3% high.
The dollar was basically flat after an early sell off. It also hit a double top this week and yesterday's pullback held at the July peak. I'd say this needs a rest but trends in currencies can go on for a while.
While not a part of the I-fund, China's economy is a major part of the global economy, and with its weaker than expected economic data reported yesterday, the Shanghai Index has been flirting with a breakdown and is now only up modestly for the year after giving most of the 2023 gains back. Not the the US economy depends on China, but it's just another cog in the US stocks market machine.
We went over the S&P 500 (C-fund) above so let's go right to the S-fund chart:
DWCPF (S-fund) was down sharply and easily fell through a bunch of support, which is concerning. I tend to look for a 3 to 5 day failure at support (or resistance ) before confirming, but that looked too easy for the bears to break below it. Of course it was headline driven and sometimes that can create a fake-out, but the bad news does seem to be piling on.
EFA (I-fund) also fell through support and again it looked too easy, but China's news did set the tone for the global economy. It was a sell first, ask questions later reaction but the question is how much does weakness in China really impact the rest of the world?
BND (Bonds / F-fund) made a new low and the chart looks broken. At some point we could get a snap back rally, and with the 10-year yield nearing overhead resistance, that could happen soon, but the long-term trend is down.
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.
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.
