The Dow and Nasdaq rallied on Friday but all of the TSP stock and bond funds were down slightly to moderately on the day It was an expiration Friday and the action was quite whippy in the afternoon. The charts and the fundamentals are all acting well, but the indices are extended and probably due for a pullback, but we are also entering the second half of December which has a bullish bias.
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The market anticipated, and has since got confirmation, that the Federal Reserve is done raising interest rates, and it is also pricing in rate cuts in 2024. It may be premature to anticipate too many cuts as the Fed has not confirmed that, but the bond market is trying to tell us that will be the case. This is basically sending an all's clear regarding inflation, although the Fed knows inflation can be sticky and it wouldn't be unprecedented to see it come back again, like it did in the 1970's, but Powell knows this and they are proceeding cautiously, even if the stock market isn't.
The 10-year Treasury Yield has fallen from 5% down below 4% in just a couple of months, and investors are falling over each other to reallocate their accounts to adjust to this development. The short-term the yield chart just fell below the already rapidly declining trading channel, after falling below the 200-day EMA last week.
The longer-term chart shows one major support line recently breaking (blue) but there is another support line just under last week's lows.
The dollar rebounded on Friday, nearly filling in Thursday's open gap. The trend is down but there is some room above it this wants to fill in that channel a little more before falling back over, although often filling a gap will act as resistance.
The price of crude has been like a tax break or stimulus for consumers and companies as it has fallen 24% in the last 2.5 months. It's now closing in on some possible support near the June lows.
Small caps have been acting particularly well and that's a result of the anticipated lower interest rates, but we are also expecting growth to slow down next near and that's not generally a good thing for stocks, particularly smaller growth stocks. I pointed out last week that the weekly charts of the Russell 2000 and the DWCPF (S-Fund) had hit some resistance and the close was going to be important. Both ended the week at or below some resistance and at the top of a large channel, that may be considered a giant bear flag.
December and January historically have been good to the small caps, so we'll have to see if the rally can continue despite the clear resistance in the vicinity.
This chart shows the AAII Investor Sentiment bulls to bears ratio and we can see it hit it's most bullish reading (investors are bullish) since early 2021 when the COVID stimulus money was flowing. That bullish sentiment did not deter the rally right away in 2021, and it's interesting to see that the bullishness subsided well before the market peaked at the end of 2021.
I marked other times that we saw readings this high, 2.66 bulls for every bear, and it did mark some short term peaks in some cases, and in others it preceded some sideways, at best, action in the coming months and years.
The S&P 500 (C-fund) is screaming higher, paying no attention to the open gaps it has flippantly left behind, leaving the bears wallowing in their disbelief. I mentioned the volume spikes before and Friday's quadruple witching trading day gave us a whopper of a volume spike. These can act as exhaustion moves, meaning the direction the market was going may hit a short-term limit, as we see some examples in the chart below, but a Fed pivot is a big deal and it may not be that easy for the bears. The pain trade would be for more upside frustrating the bears and the wannabe dip buyers who can't catch a dip.
EFA (I-fund) broke out above a prior peak last Thursday, but Friday's losses with the dollar spiking higher, left a failed breakout look on the chart. The bulls may just jump back in if the dollar pulls back again, but the charts are so extended. Again, the pain trade would be for more upside, but the chart may be trying to tell us otherwise.
BND (Bonds / F-fund) is as extended as the stock market with the recent plummet in bond yields. It is now above resistance and it got there rather easily. We see the 50-day EMA (purple) moving above the 200-day EMA (blue) and sometimes that acts as an oversold sell signal in the short-term. We'll see.
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 market anticipated, and has since got confirmation, that the Federal Reserve is done raising interest rates, and it is also pricing in rate cuts in 2024. It may be premature to anticipate too many cuts as the Fed has not confirmed that, but the bond market is trying to tell us that will be the case. This is basically sending an all's clear regarding inflation, although the Fed knows inflation can be sticky and it wouldn't be unprecedented to see it come back again, like it did in the 1970's, but Powell knows this and they are proceeding cautiously, even if the stock market isn't.
The 10-year Treasury Yield has fallen from 5% down below 4% in just a couple of months, and investors are falling over each other to reallocate their accounts to adjust to this development. The short-term the yield chart just fell below the already rapidly declining trading channel, after falling below the 200-day EMA last week.
The longer-term chart shows one major support line recently breaking (blue) but there is another support line just under last week's lows.
The dollar rebounded on Friday, nearly filling in Thursday's open gap. The trend is down but there is some room above it this wants to fill in that channel a little more before falling back over, although often filling a gap will act as resistance.
The price of crude has been like a tax break or stimulus for consumers and companies as it has fallen 24% in the last 2.5 months. It's now closing in on some possible support near the June lows.
Small caps have been acting particularly well and that's a result of the anticipated lower interest rates, but we are also expecting growth to slow down next near and that's not generally a good thing for stocks, particularly smaller growth stocks. I pointed out last week that the weekly charts of the Russell 2000 and the DWCPF (S-Fund) had hit some resistance and the close was going to be important. Both ended the week at or below some resistance and at the top of a large channel, that may be considered a giant bear flag.
December and January historically have been good to the small caps, so we'll have to see if the rally can continue despite the clear resistance in the vicinity.
This chart shows the AAII Investor Sentiment bulls to bears ratio and we can see it hit it's most bullish reading (investors are bullish) since early 2021 when the COVID stimulus money was flowing. That bullish sentiment did not deter the rally right away in 2021, and it's interesting to see that the bullishness subsided well before the market peaked at the end of 2021.
I marked other times that we saw readings this high, 2.66 bulls for every bear, and it did mark some short term peaks in some cases, and in others it preceded some sideways, at best, action in the coming months and years.
The S&P 500 (C-fund) is screaming higher, paying no attention to the open gaps it has flippantly left behind, leaving the bears wallowing in their disbelief. I mentioned the volume spikes before and Friday's quadruple witching trading day gave us a whopper of a volume spike. These can act as exhaustion moves, meaning the direction the market was going may hit a short-term limit, as we see some examples in the chart below, but a Fed pivot is a big deal and it may not be that easy for the bears. The pain trade would be for more upside frustrating the bears and the wannabe dip buyers who can't catch a dip.
EFA (I-fund) broke out above a prior peak last Thursday, but Friday's losses with the dollar spiking higher, left a failed breakout look on the chart. The bulls may just jump back in if the dollar pulls back again, but the charts are so extended. Again, the pain trade would be for more upside, but the chart may be trying to tell us otherwise.
BND (Bonds / F-fund) is as extended as the stock market with the recent plummet in bond yields. It is now above resistance and it got there rather easily. We see the 50-day EMA (purple) moving above the 200-day EMA (blue) and sometimes that acts as an oversold sell signal in the short-term. We'll see.
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.
