Stocks continued to pullback from the recent highs as investors, who had turned quite bullish in recent weeks, are now starting to question the rally, and that may be triggering some profit taking after the big 2023 gains. The Dow, up over 300 to start the day, closed with a loss of 249-points, near the lows of the day. Small caps lagged with a loss well over 1% and the I-fund held up well as the dollar was down. Bonds were down sharply as yields reversed a morning drop by spiking higher into the close.
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The pullback action we are seeing is normal - for now, and it may be a case of some bears, who have been beaten badly this year by betting against stocks, to capitulate and forced to buy / cover short positions, likely pushed the rally a little further than most expected, and right now it feels like the market just needed a little exhale. Could it be more than that? Maybe. Yields are moving up and the 2-year Treasury yield is now 4.5%, and that gives the Fed cover for continuing to raise interest rates, so as usual I keep an eye on the boring bond market and the dollar for clues.
The 10-year Yield was down in early trading yesterday when stocks were up, but both yields and stocks reversed course - funny how that works. Whether that descending resistance line breaks or not may be the tell for whether this market rally is about done, or just getting started after a brief pause. A breakout would be troubling for the stock market, while a pullback from that resistance would likely ignite more buying in stocks.
The dollar was down but it did close well off if lows of the day as it reversed its morning action as well. It too is up against some strong resistance. A breakout here above resistance may also spook the stock market.
Keeping an eye on that market leading Dow Transportation Index, the recent spike higher was a classic inverted head and shoulders breakout, but now a pullback retest of the neckline area is possible, and not a bad thing. 14,750 could be the target but the moving averages near 14,340 and 14,115 are are also potential pullback targets.
The February seasonality chart - NOT a primary indicator, shows that we are actually getting into a stronger historical period for stocks, but the end of the month has a serious bearish bias.
Chart provided courtesy of www.sentimentrader.com
The CPI report comes out next Tuesday and that could make or break many of these charts, and the action in the interim may be just noise while investors position themselves for that important inflationary telling data.
The S&P 500 (C-fund) fell sharply after a strong morning rally failed. The recent action has created a bullish looking flag with potential support between 4050 and 4000, but any meaningful fall below 4000 would create some technical damage to the chart. The rising support line off the lows (red) is currently near 3950 but that is rising quickly and will probably be closer to 4000 by the end of next week.
DWCPF (S-fund) fell through one layer of support yesterday with that 1.4% loss, but that was angle of incline probably wasn't sustainable so a pullback here may be just what the bulls need. 1725 looks like a key level although there is a lot more support below that as well.
The EFA (I-fund) was up as the dollar, which was down sharply early in the day, helped keep this fund in the green, and that rising support line that it fell through on Monday, is now acting as resistance, although it is rising resistance.
BND (Bonds / F-fund) fell sharply and closed below the rising support line, but did find support at the 50-day EMA. Sometimes breaks below support and the 200-day EMA will trigger stops getting hit pushing it a little lower, but then there are those willing to buy at the 50-day EMA, so there's a little battle going on in that area between the two.
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. Have a great weekend!
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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The pullback action we are seeing is normal - for now, and it may be a case of some bears, who have been beaten badly this year by betting against stocks, to capitulate and forced to buy / cover short positions, likely pushed the rally a little further than most expected, and right now it feels like the market just needed a little exhale. Could it be more than that? Maybe. Yields are moving up and the 2-year Treasury yield is now 4.5%, and that gives the Fed cover for continuing to raise interest rates, so as usual I keep an eye on the boring bond market and the dollar for clues.
The 10-year Yield was down in early trading yesterday when stocks were up, but both yields and stocks reversed course - funny how that works. Whether that descending resistance line breaks or not may be the tell for whether this market rally is about done, or just getting started after a brief pause. A breakout would be troubling for the stock market, while a pullback from that resistance would likely ignite more buying in stocks.
The dollar was down but it did close well off if lows of the day as it reversed its morning action as well. It too is up against some strong resistance. A breakout here above resistance may also spook the stock market.
Keeping an eye on that market leading Dow Transportation Index, the recent spike higher was a classic inverted head and shoulders breakout, but now a pullback retest of the neckline area is possible, and not a bad thing. 14,750 could be the target but the moving averages near 14,340 and 14,115 are are also potential pullback targets.
The February seasonality chart - NOT a primary indicator, shows that we are actually getting into a stronger historical period for stocks, but the end of the month has a serious bearish bias.
Chart provided courtesy of www.sentimentrader.com
The CPI report comes out next Tuesday and that could make or break many of these charts, and the action in the interim may be just noise while investors position themselves for that important inflationary telling data.
The S&P 500 (C-fund) fell sharply after a strong morning rally failed. The recent action has created a bullish looking flag with potential support between 4050 and 4000, but any meaningful fall below 4000 would create some technical damage to the chart. The rising support line off the lows (red) is currently near 3950 but that is rising quickly and will probably be closer to 4000 by the end of next week.
DWCPF (S-fund) fell through one layer of support yesterday with that 1.4% loss, but that was angle of incline probably wasn't sustainable so a pullback here may be just what the bulls need. 1725 looks like a key level although there is a lot more support below that as well.
The EFA (I-fund) was up as the dollar, which was down sharply early in the day, helped keep this fund in the green, and that rising support line that it fell through on Monday, is now acting as resistance, although it is rising resistance.
BND (Bonds / F-fund) fell sharply and closed below the rising support line, but did find support at the 50-day EMA. Sometimes breaks below support and the 200-day EMA will trigger stops getting hit pushing it a little lower, but then there are those willing to buy at the 50-day EMA, so there's a little battle going on in that area between the two.
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. Have a great weekend!
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.
