Stocks dip on another mostly quiet day on Wall Street. The minutes from the Fed's recent FOMC meeting did seem to poke a hole in the morning rally, but stocks have come a long way and the double top top just gave investors a reason to do some selling, after a monster rally off the March lows. The Dow lost 85-points, reversing an early triple digit gain.
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In the minutes from its recent meeting, the Fed said “the ongoing public health crisis would weigh heavily on economic activity, employment, and inflation in the near term and was posing considerable risks to the economic outlook over the medium term.” That was enough to trigger some selling after the recent push up to new highs. Double tops are a real thing, and while mostly psychological, taking profits after getting even seems logical to many investors and traders.
The dollar was trying to rally early, but it really pushed higher after the Fred meeting minutes were released, and as we've talked about quite a bit lately, the weak dollar helped prices move higher, so a strong dollar has a way of lowering prices.
We have been due for a pullback in stocks and while we talked about the obvious move was a pullback at the double top, we weren't so sure that we'd get it, but years and years of data tells us that is the typical course of action. It's not necessarily a bearish phenomenon, but rather a psychological play when investors get even, so that is why it tends to work. The big question is how meaningful would any double top pullback be?
The S&P 500 (C-fund) made a higher high in the a.m. but the Fed minutes triggered some selling in the afternoon and we nearly saw a negative outside reversal day, but not quite. We'll see if the "nearly" gives us the same type of negative follow-through as an outside reversal day would normally give us.
The weekly chart shows that the double top is still in play as the S&P 500 closed back back below the February highs again.
The DWCPF (S-fund) was down despite the Russell 2000 small cap index actually closing positive yesterday. The rising trading channel is getting a little more narrow but it is still intact and we'll be watching the bottom of that channel for support to hold, otherwise there's a decent drop before it gets down to the 50-day EMA - the next possible meaningful support area.
The EAFE was down 0.44% yesterday but the big rally in the dollar may give the I-fund a little more to worry about. The old resistance line is the support area to watch now, and if the rebound in the dollar continues, that 65 support area may be vulnerable.
The yield on the 10-year Treasury fell down to the 50-day EMA then rebounded and that sent the bond market down for the day. This looks like a very crucial area for bonds. There's large open gap down near 5.75% which, if it get filled, would be bullish for bonds, but if the 50-day EMA holds, bonds would likely continue lower.
BND (Bond ETF / F-fund) fell back toward the 50-day EMA erasing Tuesday's gains. That is what a negative reversal looks like on charts so the 50-day EMA support looks vulnerable here. It looks like the TSP adjusted the F-fund return as it was only down 0.2% while BND was down 0.17%.
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
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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[TD="align: center"] Daily TSP Funds Return
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[/TR]
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[TD][/TD]
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[/TR]
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In the minutes from its recent meeting, the Fed said “the ongoing public health crisis would weigh heavily on economic activity, employment, and inflation in the near term and was posing considerable risks to the economic outlook over the medium term.” That was enough to trigger some selling after the recent push up to new highs. Double tops are a real thing, and while mostly psychological, taking profits after getting even seems logical to many investors and traders.
The dollar was trying to rally early, but it really pushed higher after the Fred meeting minutes were released, and as we've talked about quite a bit lately, the weak dollar helped prices move higher, so a strong dollar has a way of lowering prices.
We have been due for a pullback in stocks and while we talked about the obvious move was a pullback at the double top, we weren't so sure that we'd get it, but years and years of data tells us that is the typical course of action. It's not necessarily a bearish phenomenon, but rather a psychological play when investors get even, so that is why it tends to work. The big question is how meaningful would any double top pullback be?
The S&P 500 (C-fund) made a higher high in the a.m. but the Fed minutes triggered some selling in the afternoon and we nearly saw a negative outside reversal day, but not quite. We'll see if the "nearly" gives us the same type of negative follow-through as an outside reversal day would normally give us.
The weekly chart shows that the double top is still in play as the S&P 500 closed back back below the February highs again.
The DWCPF (S-fund) was down despite the Russell 2000 small cap index actually closing positive yesterday. The rising trading channel is getting a little more narrow but it is still intact and we'll be watching the bottom of that channel for support to hold, otherwise there's a decent drop before it gets down to the 50-day EMA - the next possible meaningful support area.
The EAFE was down 0.44% yesterday but the big rally in the dollar may give the I-fund a little more to worry about. The old resistance line is the support area to watch now, and if the rebound in the dollar continues, that 65 support area may be vulnerable.
The yield on the 10-year Treasury fell down to the 50-day EMA then rebounded and that sent the bond market down for the day. This looks like a very crucial area for bonds. There's large open gap down near 5.75% which, if it get filled, would be bullish for bonds, but if the 50-day EMA holds, bonds would likely continue lower.
BND (Bond ETF / F-fund) fell back toward the 50-day EMA erasing Tuesday's gains. That is what a negative reversal looks like on charts so the 50-day EMA support looks vulnerable here. It looks like the TSP adjusted the F-fund return as it was only down 0.2% while BND was down 0.17%.
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
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.
