Another impressive come back for stocks after the opening bell sell off. Microsoft made a full circle from up 4% afterhours on Tuesday after reporting earnings, to being down 4% at Wednesday's opening, before closing just slightly negative, and that was basically the directional path of the major indices as well. The Dow ended the day with a 10-point gain, the S&P 500 and small caps ended the day flat, and the I-fund had solid gain with the help of more weakness in the dollar. Bonds and the F-fund were also higher with yields falling.
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It looked like it could have been a bloodbath and the end of the recent rally as the indices pulled back sharply from resistance early yesterday, but by the close the internals weren't just flat, the NYSE advance / decline numbers ended the day decisively positive. The Nasdaq saw about 300 more stocks up on the day than down, while the share volume was more flat - likely because of Microsoft and other heavily traded tech stocks.
The dollar fell to a new closing low after falling below one layer of support, and now it may challenge the intraday low from January 18th. This helped the I-fund finish with a strong gain after the US stock funds had outperformed earlier in the week leading up to yesterday's action.
The 10-year Treasury Yield continues to carve out its right shoulder in that large head and shoulders pattern. Should this play out the way an H&S pattern typically does, we could see 3.2% on the 10-year if / when it breaks down. That would help the F-fund out.
The Equal Weighted S&P 500 Index ETF was up 0.23% yesterday and this looks primed for a breakout on the upside. It could still back and fill in that right shoulder some more, but it has been banging on that overhead neckline several times and it may not wait too much longer. The C-fund does not track this ETF but it is made up of all of the same stocks in this ETF, just weighted differently. It's just an indication of more internal strength that may not be as obvious.
How long this rally will last, I don't know, but it sure has been tough to be bullish while the world has been bracing for the worst. At some point it could all come crashing down, but as I have said repeatedly, the market rarely rewards the herd when they are all thinking the same way. Once they all start embracing this rally, that will likely be the time that it starts to run out of steam.
With the market projecting a 99.7% chance of a 0.25% rate hike next week, there probably won't be too many surprises. But if there is, watch out. The market could really move. Watch the yield on the 2-year Treasury. It closed yesterday at about 4.13%. If that happens to fall below 4.0% anytime soon, the Fed may have to rethink anymore rate hikes. That could be a game changer.
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The S&P 500 (C-fund) opened below the 200-day EMA, fell below the 200-day SMA (simple average) in early trading, but fought its way back to close above them both, which was big. I like to see a 3 to 5 day confirmation before trusting a breakout, and after two closes above both of those averages, the early breakdown was a concern. Fast forward to 4 PM ET and we had a 3rd straight close above both averages. The next week is hot and heavy with earnings and the Fed and that will likely determine the breakout, whether it holds, or whether it makes a good selling opportunity. I like this set up but as we saw yesterday morning, things can change quickly.
The DWCPF (S-fund) also fought back from an early decline of more than 1.5% to close positive and back above its 200-day EMA. The inverted head and shoulders pattern is still intact, but that doesn't mean the right should can't fill in a while longer - perhaps while waiting for the Fed. If it does breakout before next week's meeting, it could set up a sell the news reaction to the FOMC meeting.
The EFA / I-fund continues to creep higher in a tight range, closing at a new high for the month yesterday. The new closing low in the dollar certainly helped.
BND (bonds / F-fund) was up after the Microsoft guidance warning triggered more economic slowdown fears, which sent yields lower and bond prices higher. It seems to be creating a bullish looking flag after the recent week long pullback. Five closes above the 200-day EMA in the last 6 trading days tells us bond traders are not shy about buying up at this level.
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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It looked like it could have been a bloodbath and the end of the recent rally as the indices pulled back sharply from resistance early yesterday, but by the close the internals weren't just flat, the NYSE advance / decline numbers ended the day decisively positive. The Nasdaq saw about 300 more stocks up on the day than down, while the share volume was more flat - likely because of Microsoft and other heavily traded tech stocks.
The dollar fell to a new closing low after falling below one layer of support, and now it may challenge the intraday low from January 18th. This helped the I-fund finish with a strong gain after the US stock funds had outperformed earlier in the week leading up to yesterday's action.
The 10-year Treasury Yield continues to carve out its right shoulder in that large head and shoulders pattern. Should this play out the way an H&S pattern typically does, we could see 3.2% on the 10-year if / when it breaks down. That would help the F-fund out.
The Equal Weighted S&P 500 Index ETF was up 0.23% yesterday and this looks primed for a breakout on the upside. It could still back and fill in that right shoulder some more, but it has been banging on that overhead neckline several times and it may not wait too much longer. The C-fund does not track this ETF but it is made up of all of the same stocks in this ETF, just weighted differently. It's just an indication of more internal strength that may not be as obvious.
How long this rally will last, I don't know, but it sure has been tough to be bullish while the world has been bracing for the worst. At some point it could all come crashing down, but as I have said repeatedly, the market rarely rewards the herd when they are all thinking the same way. Once they all start embracing this rally, that will likely be the time that it starts to run out of steam.
With the market projecting a 99.7% chance of a 0.25% rate hike next week, there probably won't be too many surprises. But if there is, watch out. The market could really move. Watch the yield on the 2-year Treasury. It closed yesterday at about 4.13%. If that happens to fall below 4.0% anytime soon, the Fed may have to rethink anymore rate hikes. That could be a game changer.
Admin Note: Attention bop.gov folks! It looks like most of our email alerts going to @bop.gov email addresses are not getting delivered. If you or someone you know has some influence over there, maybe you can help stop them from filtering out emails from @tsptalk.com and get these delivered to your inboxes. That would be much appreciated! There's probably other agencies as well, but this one stuck out to me in our recent delivery reports. Thanks.
The S&P 500 (C-fund) opened below the 200-day EMA, fell below the 200-day SMA (simple average) in early trading, but fought its way back to close above them both, which was big. I like to see a 3 to 5 day confirmation before trusting a breakout, and after two closes above both of those averages, the early breakdown was a concern. Fast forward to 4 PM ET and we had a 3rd straight close above both averages. The next week is hot and heavy with earnings and the Fed and that will likely determine the breakout, whether it holds, or whether it makes a good selling opportunity. I like this set up but as we saw yesterday morning, things can change quickly.
The DWCPF (S-fund) also fought back from an early decline of more than 1.5% to close positive and back above its 200-day EMA. The inverted head and shoulders pattern is still intact, but that doesn't mean the right should can't fill in a while longer - perhaps while waiting for the Fed. If it does breakout before next week's meeting, it could set up a sell the news reaction to the FOMC meeting.
The EFA / I-fund continues to creep higher in a tight range, closing at a new high for the month yesterday. The new closing low in the dollar certainly helped.
BND (bonds / F-fund) was up after the Microsoft guidance warning triggered more economic slowdown fears, which sent yields lower and bond prices higher. It seems to be creating a bullish looking flag after the recent week long pullback. Five closes above the 200-day EMA in the last 6 trading days tells us bond traders are not shy about buying up at this level.
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.
