Stocks got smacked to start the new week and the bears are trying to take back control. The Dow lost 643-points on Monday and the S&P 500 has given back almost all of its August gains - it's still up about 0.2% for the month. Bonds were down and the dollar was up sharply putting pressure on the prices of just about everything. Can that continue as the dollar makes a double top?
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In yesterday's commentary I pointed out four things that I am watching that could make or break this market. As I put it, they "can tell us a lot about the state of the stock market." Those four things are "the dollar, yields, oil, and High Yield Corporate Bonds [HYG]" and yesterday's action in those four was almost the perfect storm against the stock market, and stocks tanked.
The dollar moved up to close at a new multi-year high. The yield on the 10-year shot up over 3% for the first time in a month. HYG tanked and that's a bad sign for the credit market. Oil was the only one that wasn't up, but it was down big early before a creating a positive reversal day to close almost flat and near the highs of the day.
As I also mentioned, if oil sees triple digits again, that could be the last straw for the "bear market rally."
Now what? The double top in the dollar could mean a pullback is due, as is usually the case technically, but there is no law that says it can't breakout to new highs. However there are a series of open gaps that could keep it from going very far without a little backing and filling. If that happens, stocks could rebound, but that could turn out to be a good selling opportunity.
It's Tuesday and that means we could have the set up for a Turnaround Tuesday, and that could happen if the dollar does balk at this July high.
The bears have finally taken away the momentum from the bulls and now everyone has changed their question from, is this a bear market rally or the bend of the bear market? To... Will we test the lows or is this just a pullback from the 18% rally off the lows?
On Friday Jerome Powell will be speaking at the Jackson Hole Symposium and the market may be on edge until then. Perhaps we are seeing a sell the rumor, buy the news set up? I don't know but anytime the Fed is involved, expect volatility to spike, and yesterday the VIX jumped over 15%.
As I've mentioned, I have been on the cautious side and missed a lot of the latter part of the recent rally, so now that stocks are pulling back again, the trick will be to figure out where the next buying opportunity will be. We see the warning signs above and that could give us some clues as to if / when we see a test of the prior lows or if the indices find support and rally again
What happens to those charts above will likely give us that answer and the first one may be whether or not the dollar breaks out to new highs or sees a double top pullback to fill in some of those open gaps.
Here are the TSP Fund charts. I won't go into too much analysis as we see them all breaking down from the recent highs, and challenging a series of support levels. The more support, the more of a chance that we see them hold. Of course a test or even breakdown below the prior lows would be the worst case scenario.
The S&P 500 (C-fund)
The DWCPF (S-fund):
EFA (I-fund):
BND (Bonds / F-fund):
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. I appreciate it. 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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In yesterday's commentary I pointed out four things that I am watching that could make or break this market. As I put it, they "can tell us a lot about the state of the stock market." Those four things are "the dollar, yields, oil, and High Yield Corporate Bonds [HYG]" and yesterday's action in those four was almost the perfect storm against the stock market, and stocks tanked.
The dollar moved up to close at a new multi-year high. The yield on the 10-year shot up over 3% for the first time in a month. HYG tanked and that's a bad sign for the credit market. Oil was the only one that wasn't up, but it was down big early before a creating a positive reversal day to close almost flat and near the highs of the day.
As I also mentioned, if oil sees triple digits again, that could be the last straw for the "bear market rally."
Now what? The double top in the dollar could mean a pullback is due, as is usually the case technically, but there is no law that says it can't breakout to new highs. However there are a series of open gaps that could keep it from going very far without a little backing and filling. If that happens, stocks could rebound, but that could turn out to be a good selling opportunity.
It's Tuesday and that means we could have the set up for a Turnaround Tuesday, and that could happen if the dollar does balk at this July high.
The bears have finally taken away the momentum from the bulls and now everyone has changed their question from, is this a bear market rally or the bend of the bear market? To... Will we test the lows or is this just a pullback from the 18% rally off the lows?
On Friday Jerome Powell will be speaking at the Jackson Hole Symposium and the market may be on edge until then. Perhaps we are seeing a sell the rumor, buy the news set up? I don't know but anytime the Fed is involved, expect volatility to spike, and yesterday the VIX jumped over 15%.
As I've mentioned, I have been on the cautious side and missed a lot of the latter part of the recent rally, so now that stocks are pulling back again, the trick will be to figure out where the next buying opportunity will be. We see the warning signs above and that could give us some clues as to if / when we see a test of the prior lows or if the indices find support and rally again
What happens to those charts above will likely give us that answer and the first one may be whether or not the dollar breaks out to new highs or sees a double top pullback to fill in some of those open gaps.
Here are the TSP Fund charts. I won't go into too much analysis as we see them all breaking down from the recent highs, and challenging a series of support levels. The more support, the more of a chance that we see them hold. Of course a test or even breakdown below the prior lows would be the worst case scenario.
The S&P 500 (C-fund)
The DWCPF (S-fund):
EFA (I-fund):
BND (Bonds / F-fund):
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. I appreciate it. 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.
