We've had a ping pong match over the last few trading days with giant moves in both directions. Yesterday' move was to the upside and it basically recaptured Friday's losses, which had taken back Thursday's gains. But that's two up days to Friday's losses and suddenly the S&P 500 is almost 200-points above Thursday's lows. The Dow gained 551-points which percentage-wise lagged the broader indices which were up between about 2.5% to 3.5%.
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It looked like the catalyst was the 10-year Treasury Yield which fell below 4% to 3.95% in early trading, but that actually bounced late to close back above 4%, so that wasn't it.
Maybe it was the dollar which fell 1% on the day helping lift the prices of just about everything. The first thing I notice on this chart is the potential for a lower high being put in, which could mean a trend change, even if just for a short-term pullback, which could give stocks an additional lift. However there is a lot of support near 30.
OK, now that I got the boring stuff out of the way, what's really happening? My take is that things have come down very quickly, and maybe too quickly. The S&P 500 is down close 20% since the August high. The dollar and maybe yields are trying to help as I mentioned. Investor sentiment, including surveys, put / call ratios, etc., have been in the tank, which from a contrarian point of view can be bullish. Seasonality is better this time of year, especially during mid-term election years: I have posted this chart before of the average performance during midterm years:
Source: https://www.isabelnet.com/sp-500-index-performance-during-midterm-election-years/
I could name more but at this point, if this set up does not trigger some kind of meaningful bounce, more than we have seen already, then the market could be in trouble.
Are the lows for the year in? Maybe, but I wouldn't count on it. But if the 2022 low does happen to be in, I would think the first half of 2023 could be rough again because we still haven't seen any high volume, bear market bottom capitulation that I have noticed. So the inevitable may just be delayed.
During the 2008 bear market stocks were down big in September, October, and November, but a big rally started around Thanksgiving and December did post a modest gain. As I mentioned yesterday, there was a 20% rally in October 2008, and another one started at the end of November, yet the year still ended with a 37% loss.
Keep your seatbelts buckled, but it could be fun if you play it right.
The S&P 500 (C-fund) ran back up to the top of the recent short-term range, and right into resistance. At this point, with volatility so high, it's probably either another breakdown and failed rally, or a gap up above resistance. There's an open gap near 3730, but that is over resistance so it has some work to do.
The DWCPF (S-fund) is once again battling that 20-day EMA (green) after four consecutive failed attempts leading up to today. The reversal low below 1500 is the line in the sand for any bear market rally. There are some open gaps on this chart that may need to get filled before the downside resumes. I didn't mark them but there's one at 1600 and another just below 1750.
The EFA (I-fund) is flirting with some resistance as well, and like the S&P we'll probably see either a failure or a gap up above resistance. Not much in between in this volatile market.
The BND (bonds / F-fund) was up despite the 10-year yield coming away with a small gain yesterday after falling sharply in the morning. Like stocks, the low from last Thursday is an important line in the sand for a bear market rally.
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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It looked like the catalyst was the 10-year Treasury Yield which fell below 4% to 3.95% in early trading, but that actually bounced late to close back above 4%, so that wasn't it.
Maybe it was the dollar which fell 1% on the day helping lift the prices of just about everything. The first thing I notice on this chart is the potential for a lower high being put in, which could mean a trend change, even if just for a short-term pullback, which could give stocks an additional lift. However there is a lot of support near 30.
OK, now that I got the boring stuff out of the way, what's really happening? My take is that things have come down very quickly, and maybe too quickly. The S&P 500 is down close 20% since the August high. The dollar and maybe yields are trying to help as I mentioned. Investor sentiment, including surveys, put / call ratios, etc., have been in the tank, which from a contrarian point of view can be bullish. Seasonality is better this time of year, especially during mid-term election years: I have posted this chart before of the average performance during midterm years:
Source: https://www.isabelnet.com/sp-500-index-performance-during-midterm-election-years/
I could name more but at this point, if this set up does not trigger some kind of meaningful bounce, more than we have seen already, then the market could be in trouble.
Are the lows for the year in? Maybe, but I wouldn't count on it. But if the 2022 low does happen to be in, I would think the first half of 2023 could be rough again because we still haven't seen any high volume, bear market bottom capitulation that I have noticed. So the inevitable may just be delayed.
During the 2008 bear market stocks were down big in September, October, and November, but a big rally started around Thanksgiving and December did post a modest gain. As I mentioned yesterday, there was a 20% rally in October 2008, and another one started at the end of November, yet the year still ended with a 37% loss.
Keep your seatbelts buckled, but it could be fun if you play it right.
The S&P 500 (C-fund) ran back up to the top of the recent short-term range, and right into resistance. At this point, with volatility so high, it's probably either another breakdown and failed rally, or a gap up above resistance. There's an open gap near 3730, but that is over resistance so it has some work to do.
The DWCPF (S-fund) is once again battling that 20-day EMA (green) after four consecutive failed attempts leading up to today. The reversal low below 1500 is the line in the sand for any bear market rally. There are some open gaps on this chart that may need to get filled before the downside resumes. I didn't mark them but there's one at 1600 and another just below 1750.
The EFA (I-fund) is flirting with some resistance as well, and like the S&P we'll probably see either a failure or a gap up above resistance. Not much in between in this volatile market.
The BND (bonds / F-fund) was up despite the 10-year yield coming away with a small gain yesterday after falling sharply in the morning. Like stocks, the low from last Thursday is an important line in the sand for a bear market rally.
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.
