Stocks got off to a good start on Wednesday following the strong earnings reports from Microsoft and Google, but after recovering some of Tuesday's losses, the indices flipped over. The Nasdaq did hold onto a solid gain because of those tech earnings, but the broader indices were down, particularly the Transports, for a second straight day. Yields were up (bond prices down) and the dollar was down.
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Microsoft was up 7% yesterday, and being such a big part of the S&P 500 and Nasdaq, those indices didn't really reflect the internal weakness that we saw in the market yesterday. Look no further than the Russell 2000, which does not contain Microsoft, and it was down over 1% on the day.
Even the Dow couldn't withstand the broad weakness despite Microsoft being the 5th heaviest weighted stock in the index as 22 of its 30 stocks were down.
Meta (Facebook) reported earnings after the bell and once again we have another "FAANG / META" type stock doing just fine as it was up over 10% initially in after hours trading, and it will likely help the major large cap indices again disguise some of the trouble we are seeing in the average stock.
Ebay and Roku were also off and running after good earnings, which is surprising some analysts, but expectations weren't very high so these type of beats will likely help the Nasdaq outperform today again.
Not long ago the economic picture was looking questionable but the pricing action was strong and that gave investors a reason to hold onto stocks or even buy more. That pricing action has now changed and, depending on which sentiment indicators / surveys you believe, the question will be how invested are investors really, versus how much cash do they currently hold?
The more cash they have the less severe this pullback might be but again, it's tough to say since we have seen sentiment indicators all over the place including very low readings from the VIX suggesting investor complacency, but also extremely bearish surveys from JP Morgan, which I posted the other day suggesting high levels of cash.
The Dow Transportation Index, one of the market leaders, took a second consecutive big hit yesterday losing another 3.6% on the day. At yesterday's lows it came within 8 points of losing all of its 2023 gains, and it closed 12 points above that 2022 closing price of 13,392. This is what a bear flag breakdown looks like.
And small caps have been lagging recently as well. This data from sentimenTrader.com, going back to 1928, shows what happened to small caps after the S&P 500 was positive over the previous 50 trading days while small caps and the Dow Transportation Index were down more than 5% during that same time. It's not much better than a coin toss between 1 and 6 months out with below average returns.
Chart provided courtesy of www.sentimentrader.com
We get a GDP estimate today before the bell, as well as those weekly jobless claims. Amazon reports earnings after the bell today.
The S&P 500 (C-fund) was down again yesterday but found some support at the 50-day EMA before closing slightly off the lows. There's more support below but the trading channel is broken so the open gap near 3975 is back in the picture as a possible downside target if the 50 and 200-day EMAs don't hold. The PMO indicator has now crossed below its moving average. That's a bearish sign for the intermediate term, but in the short term we could see some oversold attempts at stability if panic doesn't set in and put the pressure on.
It took a while but the classic looking bear flag on the DWCPF (S-fund) has finally broken to the downside, and unlike the quick March 24 reversal, we saw some follow through selling yesterday after Tuesday's breakdown. This is a bad looking formation and the downside target of the flag is quite a way down, but we have seen rescue missions before. Perhaps the recent strong earnings reports will help this before any targets are reached? Otherwise, the aggressive Fed actions of higher interest rates are not usually good news for small cap companies.
The EFA (I-fund) held up rather well as the dollar was down modestly yesterday. This chart probably looks the best out of the C, S, and I funds, but the support line is broken and those open gaps could always be a lure on the downside.
BND (Bonds / F-fund) was down yesterday digesting some of Tuesday's big gap up gain. This looks fairly bullish for bonds to me, but the two open gaps just above the moving averages could always be a short-term target. If I had to guess, and the Fed doesn't do anything out of the ordinary next week, I'd say a move above 74.50 is more likely than a decline below 73.25, but bonds have always befuddled me.
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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Microsoft was up 7% yesterday, and being such a big part of the S&P 500 and Nasdaq, those indices didn't really reflect the internal weakness that we saw in the market yesterday. Look no further than the Russell 2000, which does not contain Microsoft, and it was down over 1% on the day.
Even the Dow couldn't withstand the broad weakness despite Microsoft being the 5th heaviest weighted stock in the index as 22 of its 30 stocks were down.
Meta (Facebook) reported earnings after the bell and once again we have another "FAANG / META" type stock doing just fine as it was up over 10% initially in after hours trading, and it will likely help the major large cap indices again disguise some of the trouble we are seeing in the average stock.
Ebay and Roku were also off and running after good earnings, which is surprising some analysts, but expectations weren't very high so these type of beats will likely help the Nasdaq outperform today again.
Not long ago the economic picture was looking questionable but the pricing action was strong and that gave investors a reason to hold onto stocks or even buy more. That pricing action has now changed and, depending on which sentiment indicators / surveys you believe, the question will be how invested are investors really, versus how much cash do they currently hold?
The more cash they have the less severe this pullback might be but again, it's tough to say since we have seen sentiment indicators all over the place including very low readings from the VIX suggesting investor complacency, but also extremely bearish surveys from JP Morgan, which I posted the other day suggesting high levels of cash.
The Dow Transportation Index, one of the market leaders, took a second consecutive big hit yesterday losing another 3.6% on the day. At yesterday's lows it came within 8 points of losing all of its 2023 gains, and it closed 12 points above that 2022 closing price of 13,392. This is what a bear flag breakdown looks like.
And small caps have been lagging recently as well. This data from sentimenTrader.com, going back to 1928, shows what happened to small caps after the S&P 500 was positive over the previous 50 trading days while small caps and the Dow Transportation Index were down more than 5% during that same time. It's not much better than a coin toss between 1 and 6 months out with below average returns.
Chart provided courtesy of www.sentimentrader.com
We get a GDP estimate today before the bell, as well as those weekly jobless claims. Amazon reports earnings after the bell today.
The S&P 500 (C-fund) was down again yesterday but found some support at the 50-day EMA before closing slightly off the lows. There's more support below but the trading channel is broken so the open gap near 3975 is back in the picture as a possible downside target if the 50 and 200-day EMAs don't hold. The PMO indicator has now crossed below its moving average. That's a bearish sign for the intermediate term, but in the short term we could see some oversold attempts at stability if panic doesn't set in and put the pressure on.
It took a while but the classic looking bear flag on the DWCPF (S-fund) has finally broken to the downside, and unlike the quick March 24 reversal, we saw some follow through selling yesterday after Tuesday's breakdown. This is a bad looking formation and the downside target of the flag is quite a way down, but we have seen rescue missions before. Perhaps the recent strong earnings reports will help this before any targets are reached? Otherwise, the aggressive Fed actions of higher interest rates are not usually good news for small cap companies.
The EFA (I-fund) held up rather well as the dollar was down modestly yesterday. This chart probably looks the best out of the C, S, and I funds, but the support line is broken and those open gaps could always be a lure on the downside.
BND (Bonds / F-fund) was down yesterday digesting some of Tuesday's big gap up gain. This looks fairly bullish for bonds to me, but the two open gaps just above the moving averages could always be a short-term target. If I had to guess, and the Fed doesn't do anything out of the ordinary next week, I'd say a move above 74.50 is more likely than a decline below 73.25, but bonds have always befuddled me.
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.
