Stocks opened lower to start the new week following Friday's major sell off. The bulls started to put up a fight to erase the losses, which they did briefly in the afternoon trading, but by the close the bears put the pressure back on and the indices closed with moderate to sharp losses. The Dow tacked on another 184 point loss to their 1008-point loss from Friday. Yields were up, oil was up, and the dollar was up, so the story remains the same.
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If the stock market can bottom here and rally back then there's something going on that I am not seeing. We had a very strong bear market rally, and the longer it went, the more I scratched my head, but we have seen that often in bear markets. The only thing that I have that might keep me from trusting the fundamentals that I see, is the technical charts and indicators, and the reason that I use them almost exclusively is two-fold.
One is that I am not an economist and have only the simplest understanding of how it all works. The other is that the market tends to look much further ahead than the news headlines that we are seeing.
Now why it goes up when things may look their worst may have something to do with sentiment extremes, but it could also be that people who understand the economics a lot more than I do, have more information than the rest of us and they may be acting on that while we're in the dark. There's actually more to why markets act the way they do, if you have ever read into the "master mind" theory, or read The Wisdom of Crowds.
So how would someone like me compete? Again, technical analysis, and the recent rally and improving charts started to have me questioning my analysis because the charts were improving so much, but now they are making more sense to what I understand is going on, and what is going on is a Fed raising interest rates to control inflation, and that will hinder economic growth. On Friday they reiterated that this is going to continue, even if we do slip into a recession.
The dollar was up most of the day yesterday and gained just a small amount, but despite that gain, the price of oil shot up $4 a barrel despite an economy that is struggling. Supply issues and rising prices in generally now see oil inching back towards $100 a barrel after breaking through resistance last week. That's not a good sign for the consumer who is struggling already and appreciated the recent drop in gas prices, which may start to turn back up soon.
The yield on the 2-year Treasury was up in the 3.42% area yesterday and this now the highest reading since 2007. That is also higher than the 3.11% yield on the 10-year Treasury so that yield curve remains inverted.
The Nasdaq chart has been breaking down, but so far it remains above the rising support line off the June lows. Apple broke down last week as well and, in recent years, as goes Apple, so goes the market so...
... this Apple chart still has a lot of support below and it probably needs to hold, or else... Unlike many of the index charts, it is above its 50 and 200-day EMAs. 155 looks to be the line in the sand for this chart, and the rest of the market is paying attention.
We'll get the August jobs report on Friday and estimates are looking for a gain of 300,000 jobs, which is well below the anomalous July reports 528K report, but still very positive for an economy that is supposed to be weakening. The estimated unemployment rate is 3.5%, which would match last month.
The S&P 500 (C-fund) closed below the 50-day EMA for a second straight day. The low yesterday was right on top of that old gap in June - which was filled in July - but these can continue to be in play as support and resistance as we go forward. With that in mind, you can see the challenges and possible areas of support that populate the chart. 3900 looks like an interesting area.
DWCPF (S-fund / small caps) lagged and closed near its lows of the day, and it did finally break back below its 50-day EMA on Monday. That move up to the 200-day EMA might be a small head and shoulders pattern with that red line being the neckline. If that's the case the downside target would be near 1650 - 1660. Not that it would bounce there, but that is just the initial technical target.
EFA (I-fund) held up better than the U.S. indices yesterday, and other than maybe some timing issues with market closures overseas, I can't say exactly why. The dollar was up just slightly so it shouldn't have been a major influence. The only theory I have is that the bottom of that open gap supported it.
BND (Bonds / F-fund) gapped down and bonds continue to move with the stock market as higher yields weigh on stock prices. There is some possible support near 74.70 but the trend is down again.
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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[TD="width: 338, align: center"] Daily TSP Funds Return
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If the stock market can bottom here and rally back then there's something going on that I am not seeing. We had a very strong bear market rally, and the longer it went, the more I scratched my head, but we have seen that often in bear markets. The only thing that I have that might keep me from trusting the fundamentals that I see, is the technical charts and indicators, and the reason that I use them almost exclusively is two-fold.
One is that I am not an economist and have only the simplest understanding of how it all works. The other is that the market tends to look much further ahead than the news headlines that we are seeing.
Now why it goes up when things may look their worst may have something to do with sentiment extremes, but it could also be that people who understand the economics a lot more than I do, have more information than the rest of us and they may be acting on that while we're in the dark. There's actually more to why markets act the way they do, if you have ever read into the "master mind" theory, or read The Wisdom of Crowds.
So how would someone like me compete? Again, technical analysis, and the recent rally and improving charts started to have me questioning my analysis because the charts were improving so much, but now they are making more sense to what I understand is going on, and what is going on is a Fed raising interest rates to control inflation, and that will hinder economic growth. On Friday they reiterated that this is going to continue, even if we do slip into a recession.
The dollar was up most of the day yesterday and gained just a small amount, but despite that gain, the price of oil shot up $4 a barrel despite an economy that is struggling. Supply issues and rising prices in generally now see oil inching back towards $100 a barrel after breaking through resistance last week. That's not a good sign for the consumer who is struggling already and appreciated the recent drop in gas prices, which may start to turn back up soon.
The yield on the 2-year Treasury was up in the 3.42% area yesterday and this now the highest reading since 2007. That is also higher than the 3.11% yield on the 10-year Treasury so that yield curve remains inverted.
The Nasdaq chart has been breaking down, but so far it remains above the rising support line off the June lows. Apple broke down last week as well and, in recent years, as goes Apple, so goes the market so...
... this Apple chart still has a lot of support below and it probably needs to hold, or else... Unlike many of the index charts, it is above its 50 and 200-day EMAs. 155 looks to be the line in the sand for this chart, and the rest of the market is paying attention.
We'll get the August jobs report on Friday and estimates are looking for a gain of 300,000 jobs, which is well below the anomalous July reports 528K report, but still very positive for an economy that is supposed to be weakening. The estimated unemployment rate is 3.5%, which would match last month.
The S&P 500 (C-fund) closed below the 50-day EMA for a second straight day. The low yesterday was right on top of that old gap in June - which was filled in July - but these can continue to be in play as support and resistance as we go forward. With that in mind, you can see the challenges and possible areas of support that populate the chart. 3900 looks like an interesting area.
DWCPF (S-fund / small caps) lagged and closed near its lows of the day, and it did finally break back below its 50-day EMA on Monday. That move up to the 200-day EMA might be a small head and shoulders pattern with that red line being the neckline. If that's the case the downside target would be near 1650 - 1660. Not that it would bounce there, but that is just the initial technical target.
EFA (I-fund) held up better than the U.S. indices yesterday, and other than maybe some timing issues with market closures overseas, I can't say exactly why. The dollar was up just slightly so it shouldn't have been a major influence. The only theory I have is that the bottom of that open gap supported it.
BND (Bonds / F-fund) gapped down and bonds continue to move with the stock market as higher yields weigh on stock prices. There is some possible support near 74.70 but the trend is down again.
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.
