Friday's action was poor, and whether that was because we were heading into the weekend under these uncertain conditions, I don't know but in general Friday's have been fairly bad this year. Unfortunately Monday's haven't been all that good either. Rallies have been sold repeatedly with most 1 or 2 day rallies quickly rolling back over. That's bear market action for you, and again it's the reason why it would be so nice to have more IFTs, so we can safely sell those monster bear market rallies, but not be shut out from buying again for the rest of the month. You can see the sea of red in the TSP funds from Friday below.
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The action in the S&P 500 (C-fund) on Friday was not good at all, and technically it was a negative outside reversal day, which generally means some short term trouble ahead. But basically the market was just digesting that large rally that we had on Wednesday, and the S&P 500 is still almost 1% above Tuesday's close. The pennant formation may be some trouble since the current trend is down, but so many of the indicators that I follow are showing extreme negatives to the point where we tend to see some relief. New lows may be coming down the road, but in the interim, the extremes make the risk / reward better than normal and we could see another bounce.
The DWCPF (small caps / S-fund) also created a bad looking negative outside reversal pattern, and that could be setting up another test of the lows or support lines below, but also a potential for a bounce off of those support levels later in the week.
The EFA (I-fund) continues to take its lumps and another big rally in the dollar on Friday kept the pressure on here. There was an open gap that needed filling just below 69 and that has been taken care of. Now the question is whether it can bounce from there, or if a test of the lows is needed again.
BND (Bonds / F-fund) made another closing low and bonds continue to be the fund to avoid, unless you are trying to pick a bottom of an awful looking chart.
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.
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The TSP is planning on adding many more investment options later this year, and that's great, but what we really want is more transactions, and that seems to be the one thing they refuse to oblige. So, if you're in the stock funds and you see a big gain like we got last Wednesday, rather than taking the profit, you are probably stuck watching those gains disappear. Especially if it's early in the month and you don't want to be stuck in the G-fund for the rest of the month with so many opportunities in this volatile market.
So the market has found its new catalyst and it is the price of oil. Stocks were skyrocketing on the day oil fell sharply last week, and on Friday, a 3% rally in oil helped push stock prices back down. There's some support on the chart of oil at the 20-day EMA so a relief rally was not a surprise, but the longer term chart of oil may be running into some resistance.
The chart above is of the long term ratio between the price of crude oil and the price of the S&P 500 going back to the highs of 2008. In other words, the price of oil is outpacing the price of stocks and it has been since the lows of the COVID crash. Of course oil was about $9 a barrel at that time. Will this ratio stop at the resistance lines I noted above? That could be the key answer for the stock market going forward in the next few weeks.
This list is showing the open interest of call options for the SPY ETF (S&P 500). Being an options expiration week, we could see the SPY (S&P 500) move toward those largest open interest areas (430, 450, 455) because any close of the SPY (currently 420.07) at or below those target prices would make those call option contracts worthless. Right now only contracts below the current price of 420.07 are "in the money."
For instance, if SPY closes on Friday at 455.00 then every option you see there that is at or above 455 becomes worthless and valued at $0. That's a lot of money to get wiped out, so you often see some manipulation, or nudging, from some of the big money to try to push the SPY above those heavily owned option prices during options expiration week. That's why options expiration week is often a good week for stocks, but the following week after all of those option expire (either in the money or out), can be negative as the manipulation is no longer needed to keep the SPY buoyant.
That's theory and clearly there is an historical pattern of this, but in a market such as this one perhaps volatility and headlines may not see it play out that way. Friday is a quadruple witching expiration day and that means March's stock index futures contracts, options on futures stock index futures, single stock options, and stock index options all expire on Friday, so there is a lot at stake this week, and a ton of money could be lost in those SPY options if we don't see the SPY close above at least 450. Can the owners of these options get it there?
Of course there are many, many different options expiring in other indices and stocks, so this is just one example, but I think the mentality behind the SPY options is probably permeating throughout the other indices.
The VIX closed at 30.75 on Friday and that was only up 1.7% which is a fairly small gain on day that saw the S&P and Nasdaq lose 1.3% and 2.2% respectively. The weekly chart below shows a possible lower high as it never did hit 40 like it did in at the January lows, and even the February high was slightly higher than last week's high. That could be wishful thinking, but we also see that most of the post-COVID spikes in volatility peaked near 40 before coming back down to more normal levels.
Chart provided courtesy of www.sentimentrader.com
Volatility has been high in various assets, which could mean things have fallen too far.
The war in the Ukraine is certainly a different situation than anything we've experience since COVID, so perhaps higher volatility will become more of the norm. But if not, maybe the peak in volatility is behind us?
The Fed's 2-day FOMC meeting starts on Tuesday with the policy statement being announced on Wednesday at about 2 PM ET.
Admin Note: March Madness is starting! Free Contest with Prizes for winners.
More info: [url]https://www.tsptalk.com/mb/site-news-and-announcements/38581-march-madness-contest-2022-a.html
[/URL]
So the market has found its new catalyst and it is the price of oil. Stocks were skyrocketing on the day oil fell sharply last week, and on Friday, a 3% rally in oil helped push stock prices back down. There's some support on the chart of oil at the 20-day EMA so a relief rally was not a surprise, but the longer term chart of oil may be running into some resistance.
The chart above is of the long term ratio between the price of crude oil and the price of the S&P 500 going back to the highs of 2008. In other words, the price of oil is outpacing the price of stocks and it has been since the lows of the COVID crash. Of course oil was about $9 a barrel at that time. Will this ratio stop at the resistance lines I noted above? That could be the key answer for the stock market going forward in the next few weeks.
This list is showing the open interest of call options for the SPY ETF (S&P 500). Being an options expiration week, we could see the SPY (S&P 500) move toward those largest open interest areas (430, 450, 455) because any close of the SPY (currently 420.07) at or below those target prices would make those call option contracts worthless. Right now only contracts below the current price of 420.07 are "in the money."
For instance, if SPY closes on Friday at 455.00 then every option you see there that is at or above 455 becomes worthless and valued at $0. That's a lot of money to get wiped out, so you often see some manipulation, or nudging, from some of the big money to try to push the SPY above those heavily owned option prices during options expiration week. That's why options expiration week is often a good week for stocks, but the following week after all of those option expire (either in the money or out), can be negative as the manipulation is no longer needed to keep the SPY buoyant.
That's theory and clearly there is an historical pattern of this, but in a market such as this one perhaps volatility and headlines may not see it play out that way. Friday is a quadruple witching expiration day and that means March's stock index futures contracts, options on futures stock index futures, single stock options, and stock index options all expire on Friday, so there is a lot at stake this week, and a ton of money could be lost in those SPY options if we don't see the SPY close above at least 450. Can the owners of these options get it there?
Of course there are many, many different options expiring in other indices and stocks, so this is just one example, but I think the mentality behind the SPY options is probably permeating throughout the other indices.
The VIX closed at 30.75 on Friday and that was only up 1.7% which is a fairly small gain on day that saw the S&P and Nasdaq lose 1.3% and 2.2% respectively. The weekly chart below shows a possible lower high as it never did hit 40 like it did in at the January lows, and even the February high was slightly higher than last week's high. That could be wishful thinking, but we also see that most of the post-COVID spikes in volatility peaked near 40 before coming back down to more normal levels.
Chart provided courtesy of www.sentimentrader.com
Volatility has been high in various assets, which could mean things have fallen too far.
The war in the Ukraine is certainly a different situation than anything we've experience since COVID, so perhaps higher volatility will become more of the norm. But if not, maybe the peak in volatility is behind us?
The Fed's 2-day FOMC meeting starts on Tuesday with the policy statement being announced on Wednesday at about 2 PM ET.
Admin Note: March Madness is starting! Free Contest with Prizes for winners.
More info: [url]https://www.tsptalk.com/mb/site-news-and-announcements/38581-march-madness-contest-2022-a.html
[/URL]
The action in the S&P 500 (C-fund) on Friday was not good at all, and technically it was a negative outside reversal day, which generally means some short term trouble ahead. But basically the market was just digesting that large rally that we had on Wednesday, and the S&P 500 is still almost 1% above Tuesday's close. The pennant formation may be some trouble since the current trend is down, but so many of the indicators that I follow are showing extreme negatives to the point where we tend to see some relief. New lows may be coming down the road, but in the interim, the extremes make the risk / reward better than normal and we could see another bounce.
The DWCPF (small caps / S-fund) also created a bad looking negative outside reversal pattern, and that could be setting up another test of the lows or support lines below, but also a potential for a bounce off of those support levels later in the week.
The EFA (I-fund) continues to take its lumps and another big rally in the dollar on Friday kept the pressure on here. There was an open gap that needed filling just below 69 and that has been taken care of. Now the question is whether it can bounce from there, or if a test of the lows is needed again.
BND (Bonds / F-fund) made another closing low and bonds continue to be the fund to avoid, unless you are trying to pick a bottom of an awful looking chart.
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.
