Stocks opened higher on Tuesday, but the highs of the day were made about an hour into the trading day and they never did much after that, although they did close off their lunchtime lows. The indices were mixed with the Dow gaining 64-points with help from the financial and energy stocks. The S&P 500 was fairly flat, the I-fund rallied, and the Nasdaq and small caps were down.
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Oil made another new high yesterday, and while there are several reasons for that including the blackouts caused by the weather in some areas, perhaps that increase had something to do with the small caps and Nasdaq being down yesterday.
Without getting too wonky, the price of oil does have a correlation with the 10-year Treasury yield, which has a direct impact on financial stocks. So, with the 10-year yield hitting 1.3% yesterday, it's not a surprise to all three of these moving in a similar bullish pattern. Economic growth tends to lead to higher demand for oil and the inflationary impact will tend to increase interest rates, which helps bank profits.
That sounds like a good thing for stocks in general, but when rates are rising, growth stocks can be negatively impacted as the search for yield gets more attractive in the safer bonds while higher P/E (price / earnings) ratios in growth stocks can look less attractive.
Just as a quick example, we've seen Apple and Amazon both come well off their recent highs despite the S&P making a new high just yesterday morning. These two stocks both posted stellar earnings but their P/E's had gotten quite high, so if growth.
I'm not saying these will continue to go down because of course yields would have to continue higher for that to happen. If yields flip back over, we could see these stocks get more attention again.
So that's just something to keep an eye on as the market tends to switch catalysts when the old catalyst loses steam. It is likely that the Fed's tremendous money supply and government stimulus are pretty much priced in at this point, but of course headlines could make for swings. There's probably a chance of a sell the news reaction when the payments do go out, but the market is now looking forward to the next catalyst, which may be bond yields and oil prices.
The S&P 500 (C-fund) hit and broke above that rising resistance line again on Tuesday before settling back below it. it is still on the upper end of the rising channel so there seems to be more room on the downside in the short to intermediate term here.
The DWCPF (small caps / S-fund) broke out early yesterday, but failed to hold and for the third time in four holidays (New Year's was the exception) we saw a post holiday failed breakout from a flat top, and the prior two did precede a brief pullback.
The EFA (I-fund) had a big day as the European markets were up big while we enjoyed our holiday day off on Monday. Today may be a different story if Europe responds to the U.S. action yesterday.
The Dow Transportation Index pushed through to a new high yesterday, and it actually closed at a new high by about 6 points, but like the other U.S. indices, it couldn't hold onto those early gains and risks becoming a double top and failed breakout as it closed below the January high again.
The BND (bonds / F-fund) bear flag breakdown continued yesterday and it fell right through the 200-day EMA. If there's any positives here it is that the downside target of the bear flag has actually already been hit. The chart looks bad but a relief rally may be due. The breakdown adds some overhead resistance in several areas on the chart including that 200-day EMA.
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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Oil made another new high yesterday, and while there are several reasons for that including the blackouts caused by the weather in some areas, perhaps that increase had something to do with the small caps and Nasdaq being down yesterday.
Without getting too wonky, the price of oil does have a correlation with the 10-year Treasury yield, which has a direct impact on financial stocks. So, with the 10-year yield hitting 1.3% yesterday, it's not a surprise to all three of these moving in a similar bullish pattern. Economic growth tends to lead to higher demand for oil and the inflationary impact will tend to increase interest rates, which helps bank profits.
That sounds like a good thing for stocks in general, but when rates are rising, growth stocks can be negatively impacted as the search for yield gets more attractive in the safer bonds while higher P/E (price / earnings) ratios in growth stocks can look less attractive.
Just as a quick example, we've seen Apple and Amazon both come well off their recent highs despite the S&P making a new high just yesterday morning. These two stocks both posted stellar earnings but their P/E's had gotten quite high, so if growth.
I'm not saying these will continue to go down because of course yields would have to continue higher for that to happen. If yields flip back over, we could see these stocks get more attention again.
So that's just something to keep an eye on as the market tends to switch catalysts when the old catalyst loses steam. It is likely that the Fed's tremendous money supply and government stimulus are pretty much priced in at this point, but of course headlines could make for swings. There's probably a chance of a sell the news reaction when the payments do go out, but the market is now looking forward to the next catalyst, which may be bond yields and oil prices.
The S&P 500 (C-fund) hit and broke above that rising resistance line again on Tuesday before settling back below it. it is still on the upper end of the rising channel so there seems to be more room on the downside in the short to intermediate term here.
The DWCPF (small caps / S-fund) broke out early yesterday, but failed to hold and for the third time in four holidays (New Year's was the exception) we saw a post holiday failed breakout from a flat top, and the prior two did precede a brief pullback.
The EFA (I-fund) had a big day as the European markets were up big while we enjoyed our holiday day off on Monday. Today may be a different story if Europe responds to the U.S. action yesterday.
The Dow Transportation Index pushed through to a new high yesterday, and it actually closed at a new high by about 6 points, but like the other U.S. indices, it couldn't hold onto those early gains and risks becoming a double top and failed breakout as it closed below the January high again.
The BND (bonds / F-fund) bear flag breakdown continued yesterday and it fell right through the 200-day EMA. If there's any positives here it is that the downside target of the bear flag has actually already been hit. The chart looks bad but a relief rally may be due. The breakdown adds some overhead resistance in several areas on the chart including that 200-day EMA.
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.
