After an historic positive reversal on Thursday following the CPI report, stocks opened higher on Friday but the bears were there to do what they have been doing most of the year... sell the rally. The Dow ended the day down 404-points and there were a lot of crooked number losses of over 2% in many of the indices. Yields and the dollar moved up putting the pressure on the stock market once again.
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Internally it was undoubtedly a weak day, although not quite as bad as the bulls, yes the bulls, may have wanted to see. That is, the 6 to 1 and 5 to 1 decliners to advancers breadth in the NYSE and Nasdaq respectively, was certainly negative, but a 9 to 1 or worse often triggers a washout low kind of action, and it didn't quite get that bad. Maybe early this week if the bulls don't show up again?
The Yield on the 10-year Treasury moved back over 4% and that has been the a trigger area of late, and on Friday we saw the first close above that level after a few intraday failures in recent weeks. The stock may need to see this pull back in the coming days to hold on to support levels, and what would send yields down at this point? One would be some kind of pivotal shift in the Fed's policy on interest rates, which may not be possible unless we get some weakening economic data that would cause them to pivot. So ironically, the bulls may need more bad economic news to see a rally in stocks.
As for the indices, there are some interesting developments on the charts of the Dow and S&P 500. Recent lows in the Dow nearly filled a large open gap from back in late 2020 (red box) near 28,500. Filling gaps often satisfies downside moves but there's actually another small open gap down near 27,000. You can see that there is a lot of congestion in this current area where the Dow is including a couple of peaks from before and Covid in 2020.
The S&P 500 chart has an open gap as well and it is right at the 2020 pre-Covid peak near 3400, but that is almost 200 points below Friday's closing price. If that doesn't get filled right away there are other support lines near 3600 area that could interest some bulls to do some buying.
That is just some short term analysis because I don't have any designs on any short term low being "the" bear market low. As long at the trend is down I am assuming that rallies need to be sold. And that is true of any 3 - 5% bounce, or a 20% bear market rally, and unfortunately it's tough to tell the difference between the two when they start.
In October of 2008, the S&P 500 lost 17%. November of that year was down another 7%. But somewhere during those two months there was a 20% rally from the middle of October into early November. And of course that bear market did not bottom out until March of 2009.
So the moral is, you can play it safe and just avoid the market until we get some kind of sign that the bear has bottomed, which isn't always easy to do. The other option - also not easy to do - is to look for short term opportunities to take advantage of explosive bear market rallies. But you have to be nimble, and not greedy, when attempting this in a bear market.
This is an options expiration week, historically a good week for stocks, but in a bear market we probably can't count on that. We'll see.
The futures have not yet opened on Sunday evening as I write this but as I have said before, market crashes can manifest out of dreary conditions like this so the set up is there, but they are rare and the alternative is some kind of an oversold rally. The fact that Thursday's rally failed the next day was alarming and seeing another day like that so quickly seems unlikely, but the big money manipulators would probably want us feeling that way before a rally.
The S&P 500 (C-fund) fell back below the June lows after Friday's reversal down. Trading volume was not elevated on Friday so it didn't feel like a capitulation, but Thursday's positive reversal did come on higher volume potentially indicating a short term downside washout. The question is, will Thursday's lows hold if tested again?
The DWCPF (S-fund) continues to hold above the June low, which is interesting. Considering the severity of this bear market, the DWCPF closed on Friday, June 16 at 57.92 and this past Friday it closed at 58.36. Yes, it lost almost the entire June - August rally, but now the indices are pretty oversold in the short term so the bears may have to work harder to push this below support. Of course in a severe bear market support can be cut through like a hot knife through butter, so it's probably a matter of whether buyers are willing to step up.
The EFA (I-fund) is well below its June lows but the current formations are similar to the other indices. We had a positive reversal that failed the next day. That's concerning but how much more do the bears have to keep pushing lower, an index that has been down so much in recent months?
The BND (bonds / F-fund) is calling the shots. As yields go up, this goes down, as does the stock market. If stocks are going to stabilize and find support, this chart will have to improve quickly as well. If the yield on the 10-year remains above 4%, this chart probably can't improve.
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 so much 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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Internally it was undoubtedly a weak day, although not quite as bad as the bulls, yes the bulls, may have wanted to see. That is, the 6 to 1 and 5 to 1 decliners to advancers breadth in the NYSE and Nasdaq respectively, was certainly negative, but a 9 to 1 or worse often triggers a washout low kind of action, and it didn't quite get that bad. Maybe early this week if the bulls don't show up again?
The Yield on the 10-year Treasury moved back over 4% and that has been the a trigger area of late, and on Friday we saw the first close above that level after a few intraday failures in recent weeks. The stock may need to see this pull back in the coming days to hold on to support levels, and what would send yields down at this point? One would be some kind of pivotal shift in the Fed's policy on interest rates, which may not be possible unless we get some weakening economic data that would cause them to pivot. So ironically, the bulls may need more bad economic news to see a rally in stocks.
As for the indices, there are some interesting developments on the charts of the Dow and S&P 500. Recent lows in the Dow nearly filled a large open gap from back in late 2020 (red box) near 28,500. Filling gaps often satisfies downside moves but there's actually another small open gap down near 27,000. You can see that there is a lot of congestion in this current area where the Dow is including a couple of peaks from before and Covid in 2020.
The S&P 500 chart has an open gap as well and it is right at the 2020 pre-Covid peak near 3400, but that is almost 200 points below Friday's closing price. If that doesn't get filled right away there are other support lines near 3600 area that could interest some bulls to do some buying.
That is just some short term analysis because I don't have any designs on any short term low being "the" bear market low. As long at the trend is down I am assuming that rallies need to be sold. And that is true of any 3 - 5% bounce, or a 20% bear market rally, and unfortunately it's tough to tell the difference between the two when they start.
In October of 2008, the S&P 500 lost 17%. November of that year was down another 7%. But somewhere during those two months there was a 20% rally from the middle of October into early November. And of course that bear market did not bottom out until March of 2009.
So the moral is, you can play it safe and just avoid the market until we get some kind of sign that the bear has bottomed, which isn't always easy to do. The other option - also not easy to do - is to look for short term opportunities to take advantage of explosive bear market rallies. But you have to be nimble, and not greedy, when attempting this in a bear market.
This is an options expiration week, historically a good week for stocks, but in a bear market we probably can't count on that. We'll see.
The futures have not yet opened on Sunday evening as I write this but as I have said before, market crashes can manifest out of dreary conditions like this so the set up is there, but they are rare and the alternative is some kind of an oversold rally. The fact that Thursday's rally failed the next day was alarming and seeing another day like that so quickly seems unlikely, but the big money manipulators would probably want us feeling that way before a rally.
The S&P 500 (C-fund) fell back below the June lows after Friday's reversal down. Trading volume was not elevated on Friday so it didn't feel like a capitulation, but Thursday's positive reversal did come on higher volume potentially indicating a short term downside washout. The question is, will Thursday's lows hold if tested again?
The DWCPF (S-fund) continues to hold above the June low, which is interesting. Considering the severity of this bear market, the DWCPF closed on Friday, June 16 at 57.92 and this past Friday it closed at 58.36. Yes, it lost almost the entire June - August rally, but now the indices are pretty oversold in the short term so the bears may have to work harder to push this below support. Of course in a severe bear market support can be cut through like a hot knife through butter, so it's probably a matter of whether buyers are willing to step up.
The EFA (I-fund) is well below its June lows but the current formations are similar to the other indices. We had a positive reversal that failed the next day. That's concerning but how much more do the bears have to keep pushing lower, an index that has been down so much in recent months?
The BND (bonds / F-fund) is calling the shots. As yields go up, this goes down, as does the stock market. If stocks are going to stabilize and find support, this chart will have to improve quickly as well. If the yield on the 10-year remains above 4%, this chart probably can't improve.
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 so much 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.
