After an ugly Thursday and Friday, Monday added to the bear market misery with more losses and now we are starting to see a little of that panic in the air. Every time you think you want to buy a dip, it goes down further. It's not until the masses give up on the buy side that this leg down will finally end, and that the sentiment behind bear markets. Stocks go up further than we expect on the way up, and down further than you'd expect on the way down. It seems to always happen. The Dow lost 876-points and there were a lot of crooked numbers on the index percentage losses.
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The trading volume was completely lopsided on the downside and the total volume was heavy, and if not "capitulation" heavy, then pretty close.
Three days in a row of 85% downside volume is really a pretty good sign that we're experiencing that capitulation because this is what panic, "get me out at any price", looks like.
The yield on the 10-year Treasury Note exploded to the upside for a second and is up to 3.37% right now. It will be tough for stocks to stabilize until this settles down.
And guess what? The 2-year Treasury is also very close to 3.4% so say hello to the next yield curve inversion, and that may again be signaling a potential recession down the road, which at this point isn't much of a surprise.
The two-day FOMC meeting starts today so we probably shouldn't expect a reversal in front of Wednesday's rate hike, but panic is in the air and something is going to give.
The Wall Street Journal reported yesterday afternoon what we talked about in yesterday's commentary, which was that a 0.75% rate hike is getting likely. It wasn't long ago that Fed Chair Powell said 0.75% wasn't even part of the conversation. Are they really that off in their analysis, or are they playing with the stock market? As I said yesterday, the market could get cranky initially on the prospects of a 0.75% hike, which I think we saw yesterday, but it could be the road to easing inflation concerns more quickly. The question is, what will it do to the economy?
QT - Quantitative Tightening - has just begun and that is going to be tough on the stock market as liquidity dries up, but the question I always have to ask before reacting to it is, has the market been pricing that in all along? The bad news is out there. Can it get worse? Yes, but the market has been getting beaten down long before the data was showing up because the stock market does tend to lead the economy by 3 - 6 months.
The S&P 500 peaked in early January. Six months later, all the bad news is gushing out. This is not a prediction but I want to point out that the market could eventually bottom 6 months before the good news starts coming out.
The crypto-currencies are not helping. They are crashing again with Bitcoin down below 23K, after being at 48K in April.
I can show charts all day but bottom line, we are in a bear market and people are still selling rallies. They got me good over the last couple of weeks because we had a good rally to sell before Memorial Day, but the bull flags on the charts kept me hanging on in case they broke to the upside, which they tend to do, but they did not, and now we see what we're getting.
In hindsight, I know exactly how we should have played it, but so does everybody else, so all we can do now is look forward, read the tea leaves, and try to figure out what is coming next.
Market crashes more often come out of this type of environments rather than off the highs like the COVID Crash, but crashes are rare and there is probably more of a chance of a decent relief rally than a crash. Unfortunately, either is still possible.
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The S&P 500 (C-fund) has just experienced a waterfall-like decline, with successive gaps opening up - very rare. The overhead resistance and 50-day EMA ended up holding and the S&P turned down, and now we have a case where the intermediate term support line is being tested already. There could be some stops below that line that they may try to take out, and with the Fed rate hike announcement coming tomorrow, that could easily happen, but it could set up a gap filling relief rally. The PMO indicator is now back below its moving average, which is a bad intermediate term sign, but also a possible indication of being short term oversold.
The DWCPF (S-fund) is also nearing the lower end of a long term descending channel. Open gaps above. It's a dangerous time and we could see wild swings in both directions so there may be opportunities, but be careful.
BND (bonds / F-fund) collapsed yesterday and the bear market in bonds is alive and well. But like stock, it may now be getting a little oversold in the short-term.
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 trading volume was completely lopsided on the downside and the total volume was heavy, and if not "capitulation" heavy, then pretty close.
Three days in a row of 85% downside volume is really a pretty good sign that we're experiencing that capitulation because this is what panic, "get me out at any price", looks like.
The yield on the 10-year Treasury Note exploded to the upside for a second and is up to 3.37% right now. It will be tough for stocks to stabilize until this settles down.
And guess what? The 2-year Treasury is also very close to 3.4% so say hello to the next yield curve inversion, and that may again be signaling a potential recession down the road, which at this point isn't much of a surprise.
The two-day FOMC meeting starts today so we probably shouldn't expect a reversal in front of Wednesday's rate hike, but panic is in the air and something is going to give.
The Wall Street Journal reported yesterday afternoon what we talked about in yesterday's commentary, which was that a 0.75% rate hike is getting likely. It wasn't long ago that Fed Chair Powell said 0.75% wasn't even part of the conversation. Are they really that off in their analysis, or are they playing with the stock market? As I said yesterday, the market could get cranky initially on the prospects of a 0.75% hike, which I think we saw yesterday, but it could be the road to easing inflation concerns more quickly. The question is, what will it do to the economy?
QT - Quantitative Tightening - has just begun and that is going to be tough on the stock market as liquidity dries up, but the question I always have to ask before reacting to it is, has the market been pricing that in all along? The bad news is out there. Can it get worse? Yes, but the market has been getting beaten down long before the data was showing up because the stock market does tend to lead the economy by 3 - 6 months.
The S&P 500 peaked in early January. Six months later, all the bad news is gushing out. This is not a prediction but I want to point out that the market could eventually bottom 6 months before the good news starts coming out.
The crypto-currencies are not helping. They are crashing again with Bitcoin down below 23K, after being at 48K in April.
I can show charts all day but bottom line, we are in a bear market and people are still selling rallies. They got me good over the last couple of weeks because we had a good rally to sell before Memorial Day, but the bull flags on the charts kept me hanging on in case they broke to the upside, which they tend to do, but they did not, and now we see what we're getting.
In hindsight, I know exactly how we should have played it, but so does everybody else, so all we can do now is look forward, read the tea leaves, and try to figure out what is coming next.
Market crashes more often come out of this type of environments rather than off the highs like the COVID Crash, but crashes are rare and there is probably more of a chance of a decent relief rally than a crash. Unfortunately, either is still possible.
-----------
Admin Note: The tsp.gov share prices used to get posted just after 7 PM ET each day but since the upgrade it has been pushed into the early hours of the following morning. So, unless something changes, our TSP Talk AutoTracker may not be updated until the morning after the close of business.
Here's the link to discussions regarding the new TSP.gov website: https://www.tsptalk.com/mb/tsp-talk-news-etc-/
List of known issues on tsp.gov: https://www.tsp.gov/new-tsp-features/known-issues/
The S&P 500 (C-fund) has just experienced a waterfall-like decline, with successive gaps opening up - very rare. The overhead resistance and 50-day EMA ended up holding and the S&P turned down, and now we have a case where the intermediate term support line is being tested already. There could be some stops below that line that they may try to take out, and with the Fed rate hike announcement coming tomorrow, that could easily happen, but it could set up a gap filling relief rally. The PMO indicator is now back below its moving average, which is a bad intermediate term sign, but also a possible indication of being short term oversold.
The DWCPF (S-fund) is also nearing the lower end of a long term descending channel. Open gaps above. It's a dangerous time and we could see wild swings in both directions so there may be opportunities, but be careful.
BND (bonds / F-fund) collapsed yesterday and the bear market in bonds is alive and well. But like stock, it may now be getting a little oversold in the short-term.
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.
