Stocks opened lower on Wednesday and because of the headwinds from the 10-year yield, the dollar, and the price of oil, there was little interest in buying and the indices drifted lower into the close. The Dow lost about 1%, and the recent leading small caps nearly gave up all of the gains from the prior big 2-day rally. Netflix and Tesla reported after the closing bell yesterday and one was trading much higher, and one modestly lower after hours so we'll see how investors handle that today.
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The 10-year Treasury Yield pushed above 4.9% yesterday, the highest close in many years. The dollar also rallied, as did the price of oil and this trio of headwind that had stymied the market for weeks, came back to put the pressure on stocks yesterday. The 10-year yield is at the top of the rising trading channel, but the channel is rising, so resistance is as well.
The market had been holding up well in October despite these headwinds and you can see below that since late September the S&P 500 has been able to move higher even with the 10 year yield spiking and the dollar drifting a little higher.
Oil was also up big yesterday. Oil has a tendency to follow the 10-year yield since both are an indication of economic strength, although that's not always the case. It was the case yesterday but as a chart reader, I see oil in a bear flag formation and they have a strong tendency to eventually break down. So, just like higher interest rates and yields could slow down the economy and eventually lower yields, oil is in the same situation. If it gets too high, demand will drop and it will likely weaken. When, is the question?
Netflix and Tesla reported earnings after the bell yesterday. Tesla disappointed and was trading modestly lower after hours but Netflix was a different story. Big numbers and more subscribers than expected sent it up sharply in after hours trading. I had to edit the closing chart to show that it was trading up 12% after hours near 390.
Could this ignite the Nasdaq and magnificent seven stocks today? Maybe. But Jerome Powell will be speaking today and he could be the prevailing catalyst today.
The S&P 500 (C-fund) pulled back sharply and hit a low just above 4300, and if that low can hold it might be the bottom of a bull flag, but other than that the S&P is 40+ points above the the 200-day EMA, and about 100 points above the prior lows. That's a lot of question marks. Does it fail and the bear come back into the picture, or does the bull flag hold after the Netflix earnings report, and bring a bullish formation to the forefront? It still hasn't filled that open gap near 4400, although technically it may be close enough.
DWCPF (S-fund, small caps) gave up two big days of gains with yesterday 2.27% loss. Ugly action. Ugly chart. 1640 - 1660 are possible support levels, but the trend has been down and we'd need to see the bulls make a complete about face to change this bearish setup.
The EFA (I-fund) got more pressure from the dollar and of course the geopolitical situation. I didn't like to see it fall back below 68.50 so easily. I thought holding above that the prior three days was a good sign, but that's over. Now it is staring at a possible test of the lows.
BND (bonds / F-fund) did not hold up at the double bottom as I thought it might. This opens the door for lower bond prices. The question is whether the 10-year yield will be able to continue to move much higher than 5% if and when it reaches that level (currently 4.9%)? When stocks are falling, bonds are usually the safety net to buy. This time it's bonds that are causing stocks to fall. A little uncharted territory.
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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The 10-year Treasury Yield pushed above 4.9% yesterday, the highest close in many years. The dollar also rallied, as did the price of oil and this trio of headwind that had stymied the market for weeks, came back to put the pressure on stocks yesterday. The 10-year yield is at the top of the rising trading channel, but the channel is rising, so resistance is as well.
The market had been holding up well in October despite these headwinds and you can see below that since late September the S&P 500 has been able to move higher even with the 10 year yield spiking and the dollar drifting a little higher.
Oil was also up big yesterday. Oil has a tendency to follow the 10-year yield since both are an indication of economic strength, although that's not always the case. It was the case yesterday but as a chart reader, I see oil in a bear flag formation and they have a strong tendency to eventually break down. So, just like higher interest rates and yields could slow down the economy and eventually lower yields, oil is in the same situation. If it gets too high, demand will drop and it will likely weaken. When, is the question?
Netflix and Tesla reported earnings after the bell yesterday. Tesla disappointed and was trading modestly lower after hours but Netflix was a different story. Big numbers and more subscribers than expected sent it up sharply in after hours trading. I had to edit the closing chart to show that it was trading up 12% after hours near 390.
Could this ignite the Nasdaq and magnificent seven stocks today? Maybe. But Jerome Powell will be speaking today and he could be the prevailing catalyst today.
The S&P 500 (C-fund) pulled back sharply and hit a low just above 4300, and if that low can hold it might be the bottom of a bull flag, but other than that the S&P is 40+ points above the the 200-day EMA, and about 100 points above the prior lows. That's a lot of question marks. Does it fail and the bear come back into the picture, or does the bull flag hold after the Netflix earnings report, and bring a bullish formation to the forefront? It still hasn't filled that open gap near 4400, although technically it may be close enough.
DWCPF (S-fund, small caps) gave up two big days of gains with yesterday 2.27% loss. Ugly action. Ugly chart. 1640 - 1660 are possible support levels, but the trend has been down and we'd need to see the bulls make a complete about face to change this bearish setup.
The EFA (I-fund) got more pressure from the dollar and of course the geopolitical situation. I didn't like to see it fall back below 68.50 so easily. I thought holding above that the prior three days was a good sign, but that's over. Now it is staring at a possible test of the lows.
BND (bonds / F-fund) did not hold up at the double bottom as I thought it might. This opens the door for lower bond prices. The question is whether the 10-year yield will be able to continue to move much higher than 5% if and when it reaches that level (currently 4.9%)? When stocks are falling, bonds are usually the safety net to buy. This time it's bonds that are causing stocks to fall. A little uncharted territory.
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.
