Stocks rallied early yesterday, before the FOMC meeting and the typical theatrics started that come afterward, but by the time the dust settled the Fed gave the bulls what they wanted to hear, even if it wasn't much. There were just no negative surprises, and with the market falling for three months, the recent snap back rally off the recent lows continued. The Dow gained 222-points and we saw gains of 1% or more in many indices. The back and forth small caps, mostly back, lagged again with a more modest gain, despite the Fed's more dovish outlook.
[TABLE="align: center"]
[TR]
[TD="align: center"]
[/TD]
[TD]
[/TD]
[TD="width: 338, align: center"] Daily TSP Funds Return
[TABLE="align: center"]
[TR]
[TD="align: right"][/TD]
[/TR]
[/TABLE]
[/TD]
[/TR]
[/TABLE]
The Fed has not been too friendly to the market over the last year or so, but yesterday they did put the vibe out there that interest rate hikes are likely done, although there was no commitment as Powell said they will continue to monitor the data and make changes as needed.
That was good enough for the bulls as stocks and bonds rallied strongly (bond yields down) and the 10-year Treasury Yield hit a 2-week low, closing below 4.8% for the first time since October 16. There's an open gap just below yesterday's low and any decrease in the yield today would likely fill that gap and also put it below the ascending channel that actually started back in September.
The longer-term rising channel (red) started well below that and there is room on the downside before that support gets tested, so it would take a big move lower to break that trend.
I want to hit the S-fund today since it has been lagging so much. This is the time of year, November thru January, that small caps tend to outperform. However they have been quite toxic in recent months. We have seen a nice 3-day rally off of Friday lows, so have we missed the chance to buy low and take advantage of this seasonal advantage? Probably not, if you believe stocks in general are going to rally. Based on this three month chart, the 3-day rally has hardy put a dent in the decline.
Going back further however, the story gets more murky. Yes, there has been an 18-month trading channel between 1500 and 1900, and right now it is close to the lower end of the channel. Lots of room to run, right? Well, as long as that support holds and the giant bear flag in red doesn't break to the downside as they tend to do. The downside target would be extremely troubling - perhaps as low as the 2020 lows.
Being more of a short-term outlook guy, I'm more concerned about the next week or month, but if have been hiding in cash and looking for a place to park some money, the S-fund could be a good option -- or really bad. If the recent lows near 1575 get taken out, that would be a red flag that the long term prospects may not be good at all. However, as long as 1575 holds, the chances of a move back up toward 1900 again, are real.
1900 may be a long wait if it does head in that direction, but if it can actually break above that, 2400 becomes a potential target. So the risk reward could be very good as long as you respect what it means if the support fails. It throws all of the upside possibilities out the window and becomes dangerous.
So while I like the set up, I'm not a buy and holder of small caps. I would prefer to use a trailing stop meaning every time it goes up, my sell price would go up as well, depending on the shorter term support that follows.
Apple, reports earnings after the bell today so it could make or break this recent rally. If Apple gets on board, it could be the icing on the cake for an end of year rally.
We'll get the October jobs report tomorrow before the opening bell and estimates are looking for a gain of about 175,000 jobs. The unemployment rate is expected to be 3.8%.
Admin Note: I wanted to give a shout out to the October AutoTracker leaders / winners. It was a bad month for stocks, but the leaders did some fancy footwork trading and all ended the month on a positive note, with Beau435 leading the way with an impressive 3.09% gain in October. The top 5 returns receive Amazon gift cards.
Want to join the AutoTracker? It's free! How to Create an Account
And, or, follow the leaders with a subscription to: The Last Look Report
The S&P 500 (C-fund) had a nice relief rally off the lows but here comes some of resistance to test the rebound. The easier money may have been made already unless this can cut through the 200-day EMA, which isn't always easy from below. The top of the current trading channel is all the way up above 4300, which is where the 50-day EMA is as well. We will know a lot more about the state of the market if it gets there, but then we will have more questions about the trading channel and whether it will break or hold at that resistance. Remember, we had a similar rally at the beginning of October that failed after a few days, but I would say the story is better today than it was then.
DWCPF (S-fund) was discussed above but I just wanted to show again how much upside room there is. However, that old gap could be a stubborn area if the bulls can't keep the pressure on after Apple reports tonight.
It's the same story for the EFA (I-fund) with a strong move off the lows, but plenty of resistance overhead. The dollar made a new high yesterday before reversing, but it is still an obstacle.
BND (bonds / F-fund) had a big rally and it is getting very close to an attempted breakout above the long descending channel. A breakout would put the F-fund back in play vs. the G-fund, although there are still risks with the F-fund while the G-fund has no risk and it is paying over 4% right now.
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.
[TABLE="align: center"]
[TR]
[TD="align: center"]
[TD]
[/TD]
[TD="width: 338, align: center"] Daily TSP Funds Return
[TR]
[TD="align: right"][/TD]
[/TR]
[/TABLE]
[/TD]
[/TR]
[/TABLE]
The Fed has not been too friendly to the market over the last year or so, but yesterday they did put the vibe out there that interest rate hikes are likely done, although there was no commitment as Powell said they will continue to monitor the data and make changes as needed.
That was good enough for the bulls as stocks and bonds rallied strongly (bond yields down) and the 10-year Treasury Yield hit a 2-week low, closing below 4.8% for the first time since October 16. There's an open gap just below yesterday's low and any decrease in the yield today would likely fill that gap and also put it below the ascending channel that actually started back in September.
The longer-term rising channel (red) started well below that and there is room on the downside before that support gets tested, so it would take a big move lower to break that trend.
I want to hit the S-fund today since it has been lagging so much. This is the time of year, November thru January, that small caps tend to outperform. However they have been quite toxic in recent months. We have seen a nice 3-day rally off of Friday lows, so have we missed the chance to buy low and take advantage of this seasonal advantage? Probably not, if you believe stocks in general are going to rally. Based on this three month chart, the 3-day rally has hardy put a dent in the decline.
Going back further however, the story gets more murky. Yes, there has been an 18-month trading channel between 1500 and 1900, and right now it is close to the lower end of the channel. Lots of room to run, right? Well, as long as that support holds and the giant bear flag in red doesn't break to the downside as they tend to do. The downside target would be extremely troubling - perhaps as low as the 2020 lows.
Being more of a short-term outlook guy, I'm more concerned about the next week or month, but if have been hiding in cash and looking for a place to park some money, the S-fund could be a good option -- or really bad. If the recent lows near 1575 get taken out, that would be a red flag that the long term prospects may not be good at all. However, as long as 1575 holds, the chances of a move back up toward 1900 again, are real.
1900 may be a long wait if it does head in that direction, but if it can actually break above that, 2400 becomes a potential target. So the risk reward could be very good as long as you respect what it means if the support fails. It throws all of the upside possibilities out the window and becomes dangerous.
So while I like the set up, I'm not a buy and holder of small caps. I would prefer to use a trailing stop meaning every time it goes up, my sell price would go up as well, depending on the shorter term support that follows.
Apple, reports earnings after the bell today so it could make or break this recent rally. If Apple gets on board, it could be the icing on the cake for an end of year rally.
We'll get the October jobs report tomorrow before the opening bell and estimates are looking for a gain of about 175,000 jobs. The unemployment rate is expected to be 3.8%.
Admin Note: I wanted to give a shout out to the October AutoTracker leaders / winners. It was a bad month for stocks, but the leaders did some fancy footwork trading and all ended the month on a positive note, with Beau435 leading the way with an impressive 3.09% gain in October. The top 5 returns receive Amazon gift cards.
Want to join the AutoTracker? It's free! How to Create an Account
And, or, follow the leaders with a subscription to: The Last Look Report
The S&P 500 (C-fund) had a nice relief rally off the lows but here comes some of resistance to test the rebound. The easier money may have been made already unless this can cut through the 200-day EMA, which isn't always easy from below. The top of the current trading channel is all the way up above 4300, which is where the 50-day EMA is as well. We will know a lot more about the state of the market if it gets there, but then we will have more questions about the trading channel and whether it will break or hold at that resistance. Remember, we had a similar rally at the beginning of October that failed after a few days, but I would say the story is better today than it was then.
DWCPF (S-fund) was discussed above but I just wanted to show again how much upside room there is. However, that old gap could be a stubborn area if the bulls can't keep the pressure on after Apple reports tonight.
It's the same story for the EFA (I-fund) with a strong move off the lows, but plenty of resistance overhead. The dollar made a new high yesterday before reversing, but it is still an obstacle.
BND (bonds / F-fund) had a big rally and it is getting very close to an attempted breakout above the long descending channel. A breakout would put the F-fund back in play vs. the G-fund, although there are still risks with the F-fund while the G-fund has no risk and it is paying over 4% right now.
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.
