Stocks opened higher on Wednesday, and that was about as good as it got as sellers jumped on the gains right away, and by the close it was another negative day for the stock market as investors finally saw a test of the January lows manifest. What now, is the question? The Dow lost 465-points while the Nasdaq lagged with a 2.6% decline and, after holding up well for most of the day, small caps tanked into close to lose more than 2%.
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The S&P 500 (C-fund) is testing the January lows, and as I talk about above, this is a very key level for stocks. A breakdown that does not trigger a capitulation-like low would be troublesome. It would be unusual enough that I would start to be concerned that something else besides rate hikes from the Fed and the Russia situation is brewing under the surface.
The DWCPF (small caps / S-fund) hasn't quite hit its January lows, but close enough to call it a test. The action is bad, but this is bear market activity and relief rallies will come and try to pull everyone back in again. It can be good trading setup, but be careful out there.
The EFA (I-fund) -- same situation and this one did break below that channel I noted the other day.
BND (Bonds / F-fund) is near its lows so investors have still not panicked into this safety play.
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
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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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Despite more of the same bearish action for the stock market, there was no real signs of a run for safety in bonds and metals so the Fed is probably still the main concern, and Russia is the excuse being used for testing the lows. Buyers just haven't stepped up yet and it's created a vacuum down to the January lows.
At this point it is a question of whether the market manipulators will run after the stops that are likely below the January lows, before starting to buy themselves. By manipulators I don't mean they are cheating but rather they are more likely larger traders who are able to take advantage of smaller traders and investors by manipulating their actions by pushing the market in one direction or the other and forcing their hand, and perhaps triggering margin calls from leveraged investors.
The geopolitical activity is certainly a concern for the world, but it won't have a major impact on the earnings of companies like Amazon or Google which basically make up the U.S. indices, and in the end that's what matters most. Now tax and interest rates -- they have an impact.
Testing the prior lows isn't a surprise to us as we saw it as a good possible, and it is an important area on the chart as you can see, but now that it is there, will it break through the support, bounce off it, hover around it for a while? That's a tougher question to answer. It actually looks like a big head and shoulders pattern, which could be a large topping formation for the bull market. However, unlike the 2020 Covid crash, bear markets don't tend to go straight down so I expect, and hope, that we'll see a lot of up and down volatility to set up good market timing trades.
We haven't seen a capitulation low yet where we get a big gap down and something like a TV special on CNBC about the "Market in Crisis", etc., so perhaps there's more downside to come, but the fear is getting more pronounced and if we see a breakdown below that support, it will likely be a high volume panicky move that could be a good place to put money to work if you have any. But this is, or could be, a bear market, and big rallies in bear markets are inevitable, although fleeting and that means we have to stay nimble.
The 10-year Treasury Yield did bounce off of its rising support line yesterday, and this is evidence that investors aren't running for cover and putting money in bonds for safety yet.
When that yield goes up, the bond prices come down, and again this shows there isn't a rush for safety.
The dollar was up modestly yesterday but it is possibly coming up against some resistance.
The move up in gold and silver recently is a sign of possible fear in the equity markets, but they are really just getting back to levels we saw in 2021, so good moves, but nothing too alarming yet. Gold, however, may be primed for a major breakout if it can keep going.
Update late Thursday night: Missiles were launched into the Ukraine overnight and of course the futures market is in a bit of a panic. This will likely bring on the breakdown of the lows and support, take out some stops, trigger some margin calls, but it could turn out to be a washout low. Short-term at least, because this is clearly a market in trouble, but an oversold market with the potential for a buy the news reaction at some point, after the market spent the last week or so selling the rumor. Buckle up.
At this point it is a question of whether the market manipulators will run after the stops that are likely below the January lows, before starting to buy themselves. By manipulators I don't mean they are cheating but rather they are more likely larger traders who are able to take advantage of smaller traders and investors by manipulating their actions by pushing the market in one direction or the other and forcing their hand, and perhaps triggering margin calls from leveraged investors.
The geopolitical activity is certainly a concern for the world, but it won't have a major impact on the earnings of companies like Amazon or Google which basically make up the U.S. indices, and in the end that's what matters most. Now tax and interest rates -- they have an impact.
Testing the prior lows isn't a surprise to us as we saw it as a good possible, and it is an important area on the chart as you can see, but now that it is there, will it break through the support, bounce off it, hover around it for a while? That's a tougher question to answer. It actually looks like a big head and shoulders pattern, which could be a large topping formation for the bull market. However, unlike the 2020 Covid crash, bear markets don't tend to go straight down so I expect, and hope, that we'll see a lot of up and down volatility to set up good market timing trades.
We haven't seen a capitulation low yet where we get a big gap down and something like a TV special on CNBC about the "Market in Crisis", etc., so perhaps there's more downside to come, but the fear is getting more pronounced and if we see a breakdown below that support, it will likely be a high volume panicky move that could be a good place to put money to work if you have any. But this is, or could be, a bear market, and big rallies in bear markets are inevitable, although fleeting and that means we have to stay nimble.
The 10-year Treasury Yield did bounce off of its rising support line yesterday, and this is evidence that investors aren't running for cover and putting money in bonds for safety yet.
When that yield goes up, the bond prices come down, and again this shows there isn't a rush for safety.
The dollar was up modestly yesterday but it is possibly coming up against some resistance.
The move up in gold and silver recently is a sign of possible fear in the equity markets, but they are really just getting back to levels we saw in 2021, so good moves, but nothing too alarming yet. Gold, however, may be primed for a major breakout if it can keep going.
Update late Thursday night: Missiles were launched into the Ukraine overnight and of course the futures market is in a bit of a panic. This will likely bring on the breakdown of the lows and support, take out some stops, trigger some margin calls, but it could turn out to be a washout low. Short-term at least, because this is clearly a market in trouble, but an oversold market with the potential for a buy the news reaction at some point, after the market spent the last week or so selling the rumor. Buckle up.
The S&P 500 (C-fund) is testing the January lows, and as I talk about above, this is a very key level for stocks. A breakdown that does not trigger a capitulation-like low would be troublesome. It would be unusual enough that I would start to be concerned that something else besides rate hikes from the Fed and the Russia situation is brewing under the surface.
The DWCPF (small caps / S-fund) hasn't quite hit its January lows, but close enough to call it a test. The action is bad, but this is bear market activity and relief rallies will come and try to pull everyone back in again. It can be good trading setup, but be careful out there.
The EFA (I-fund) -- same situation and this one did break below that channel I noted the other day.
BND (Bonds / F-fund) is near its lows so investors have still not panicked into this safety play.
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 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.
