Stocks opened higher on Monday morning following Friday's impressive positive reversal day, but once again comments from President Trump on tariffs took its toll on the already vulnerable indices and we are seeing the recent lows getting tested again. Bonds rallied with yields falling as economic growth estimates continue to decline, so bonds and stocks are pricing in the changes. Emotions are getting high as volatility increases.
The hope of a last minute reversal of the 25% tariffs imposed on Canada and Mexico was dashed as Trump announced no changes, plus he imposed the additional 10% tariff on China, taking their total to 20%.
The Atlanta Fed changed their GDP growth projection for the 1st quarter down to a 2.8% decline, and the stock market, which had already been considered overvalued by many measures, is trying to price this in.
Technically the S&P 500 is still hanging around the recent lows as it tested the bottom of that open gap again, as well as some old descending resistance, which is now trying to hold as support.
It's a messy time as the stock market is not a big fan of uncertainty. It can deal with bad news as long as the issues are on the table, but right now adjusting to the many changes going on both financially and politically, is causing volatility.
One area that benefits from slower growth and stock market uncertainty is the bond market as bonds and gold are considered safety plays when the going gets tough. BND (F-fund) had another strong day in comparison to stocks, as the chart continues to push through resistance to new multi-month highs.
We have been seeing some extremes in many of the sentiment type indicators - normally enough to trigger a snap back rally, but Friday's reversal was swatted back down with the new round of bearish news.
Another sentiment type indicator that we haven't really talked about much lately are the put / call ratios, which is typically another "dumb money" indicator, meaning when this group of investors are at extremes, it tends to favor a move in the other direction. These two indicators are showing some fear, but not really as much as some of those other sentiment indicators. When these numbers get larger (lower on the chart) it means investors are loading up on put options, which is a hedge against downside action.
Both the CBOE and the Equity Put / Call ratios are at levels that led to bottoms in the S&P 500 going back to the election, but you can see by the action in late summer that they can get much lower.
The Dow Transportation Index had been triggering some warning signs but it repeatedly held onto longer term support by remaining above that 200-day moving average - until just recently. Yesterday's negative outside reversal day could be a really bad sign. It doesn't mean stocks will continue to head straight down from here as they have become quite oversold in the short-term, but the rare negative outside reversal days tend to come back to haunt us as a major turning point, even it we do see some relief in the short-term.
It's not dead yet, but there's some significant cracks in both the short and longer term charts.
As far as what happens next for the stock market is not clear. The odds favor a meaningful relief rally, so that's the most likely outcome, but market crashes tend to manifest from similar situations -- a market that should bounce, but doesn't. I'm not calling for a crash at all - there are some very good signs that the pullback is nearly completed, but can we rule it out? With all the uncertainty out there, probably not.
We have, however, been getting several Titanic Syndrome warning signals. They are by no means pleasant when they work -- when they work. The problem is, you don't know which signals will precede a major fall and which will be false flags. Be careful.
We'll get the February jobs report on Friday. Estimates are looking for a gain of 145,000 jobs and an unemployment rate of 4.0%.
The February TSP Talk AutoTracker winners have been posted in the forum. Congratulations to felixthecat for the 2.88% gain in the month, beating all the funds and all participants. Get in on the action - it's free!
DWCPF (S-fund) fell below more key moving averages, but conveniently it stopped going down at the bottom of what I have been calling a big bull flag. Will they take that out today, or does the rebound begin from here?
ACWX (the I-fund tracking index) was actually up on the day, thanks to a decline in the dollar as the international markets try to ignore the turmoil in the US. That 55 area seems to have held, but we did get a negative reversal day on this chart despite the gains, so let's see if that low from Friday can hold.
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
Questions, comments, or issues with today's commentary? We can discuss it in the Forum.
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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 may use additional methods and strategies to determine fund positions.
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The hope of a last minute reversal of the 25% tariffs imposed on Canada and Mexico was dashed as Trump announced no changes, plus he imposed the additional 10% tariff on China, taking their total to 20%.
The Atlanta Fed changed their GDP growth projection for the 1st quarter down to a 2.8% decline, and the stock market, which had already been considered overvalued by many measures, is trying to price this in.
Technically the S&P 500 is still hanging around the recent lows as it tested the bottom of that open gap again, as well as some old descending resistance, which is now trying to hold as support.
It's a messy time as the stock market is not a big fan of uncertainty. It can deal with bad news as long as the issues are on the table, but right now adjusting to the many changes going on both financially and politically, is causing volatility.
One area that benefits from slower growth and stock market uncertainty is the bond market as bonds and gold are considered safety plays when the going gets tough. BND (F-fund) had another strong day in comparison to stocks, as the chart continues to push through resistance to new multi-month highs.
We have been seeing some extremes in many of the sentiment type indicators - normally enough to trigger a snap back rally, but Friday's reversal was swatted back down with the new round of bearish news.
Another sentiment type indicator that we haven't really talked about much lately are the put / call ratios, which is typically another "dumb money" indicator, meaning when this group of investors are at extremes, it tends to favor a move in the other direction. These two indicators are showing some fear, but not really as much as some of those other sentiment indicators. When these numbers get larger (lower on the chart) it means investors are loading up on put options, which is a hedge against downside action.
Both the CBOE and the Equity Put / Call ratios are at levels that led to bottoms in the S&P 500 going back to the election, but you can see by the action in late summer that they can get much lower.
The Dow Transportation Index had been triggering some warning signs but it repeatedly held onto longer term support by remaining above that 200-day moving average - until just recently. Yesterday's negative outside reversal day could be a really bad sign. It doesn't mean stocks will continue to head straight down from here as they have become quite oversold in the short-term, but the rare negative outside reversal days tend to come back to haunt us as a major turning point, even it we do see some relief in the short-term.
It's not dead yet, but there's some significant cracks in both the short and longer term charts.
As far as what happens next for the stock market is not clear. The odds favor a meaningful relief rally, so that's the most likely outcome, but market crashes tend to manifest from similar situations -- a market that should bounce, but doesn't. I'm not calling for a crash at all - there are some very good signs that the pullback is nearly completed, but can we rule it out? With all the uncertainty out there, probably not.
We have, however, been getting several Titanic Syndrome warning signals. They are by no means pleasant when they work -- when they work. The problem is, you don't know which signals will precede a major fall and which will be false flags. Be careful.
We'll get the February jobs report on Friday. Estimates are looking for a gain of 145,000 jobs and an unemployment rate of 4.0%.
The February TSP Talk AutoTracker winners have been posted in the forum. Congratulations to felixthecat for the 2.88% gain in the month, beating all the funds and all participants. Get in on the action - it's free!
DWCPF (S-fund) fell below more key moving averages, but conveniently it stopped going down at the bottom of what I have been calling a big bull flag. Will they take that out today, or does the rebound begin from here?
ACWX (the I-fund tracking index) was actually up on the day, thanks to a decline in the dollar as the international markets try to ignore the turmoil in the US. That 55 area seems to have held, but we did get a negative reversal day on this chart despite the gains, so let's see if that low from Friday can hold.
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
Questions, comments, or issues with today's commentary? We can discuss it in the Forum.
Daily Market Commentary Archives
For more info our other premium services, please go here... www.tsptalk.com/premiums.php
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 may use additional methods and strategies to determine fund positions.
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