Stocks bounced back on Friday after a favorable inflationary PCE Prices report which was cooler than expected. Was that big gain the start of the Santa Claus rally, or just a temporary relief rally? The charts suggest today and tomorrow could be crucial days from the technical analysis standpoint as Friday's relief rally ran right into some resistance. Bonds rallied on the inflation data, giving the F-fund a nice gain, but the I-fund lagged badly.
The PCE Prices report is touted as a key Fed indicator for inflation and while it did little to change the Fed Funds Rate futures, it did ease investors' minds that inflation is not bouncing back to the degree we saw a couple of years ago.
The 14-day streak of consecutive negative breadth (more stocks down than up) was broken convincingly with Friday's rally.
There was some late selling late in the day, and when we look at many of the charts, we can see that it took the S&P 500 (C-fund) back below its 50-day EMA and the support line of its ascending trading channel, after pushing above those obstacles earlier in the day. I am going to assume some of that selling had to do with going into the weekend without a government budget deal, but since then a shutdown has been averted when a stopgap spending bill was signed into law over the weekend.
I highlighted with arrows, some potential key aspects that may dictate short and intermediate term direction. The red arrow is a nasty negative reversal day triggered by the Fed's recent pivot. Negative outside reversal days that large can be major market direction changers where selling rallies become more important then buying dips. It is the time of year that we can often overlook something like that in the short-term, but it's there and may come back to haunt the market.
The green arrow is the 20-day EMA where Friday's rally ran out of steam on Friday, after crashing below it on Wednesday.
The blue arrow is a possible positive outside reversal day, which is as bullish as the negative reversal day was bearish. The fact that is closed well off the highs and it couldn't quite close above Thursday's high, takes some of the wind out of that sail.
The purple circles are breakdowns below the 50-day EMA and it is pivotal for the bulls to recapture that quickly, as it did in September, otherwise the bears will be given a green light to pounce in that area.
Also, the gap from after Election Day is still open so that's always a possible target.
The yield on the 10-Year Treasury Note moved down on Friday, as you'd expect with that non-inflationary PCE report, but not only did it close well off the lows, but it reversed only after filling in an open gap from the day before, so it could have been just a technical pullback. If we start seeing yields hitting 4.6% heading toward 5% again, then investors have a pretty good reason for locking in a decent rate of return in bonds here instead of investing in a more risky, historically overvalued stock market.
I've shown this chart a few times in recent weeks showing that the Fed is adding liquidity to the system. The downtrend broke a couple of months ago. This is a very bullish development for stocks as liquidity (along with lower interest rates) is one of the best catalysts for the stock market. We know that interest rates may not be going much lower, but this is still on track to favor putting money to work in stocks and other assets like crypto.
Here's a couple of important charts flirting with key support levels: The market leading Dow Transportation Index, which unfortunately has been leading the market down recently, is testing its 200 day moving averages. It held - for the most part - in recent tests, so the bulls need this to turn up to keep the rest of the market from following it into a possible break down or even a bear market. It down just 10% from highs, so it is not in bear market territory yet, but trading below the 200-day average will give it a bearish spin.
The Nasdaq 100 (QQQ) is testing its 50-day EMA and the bottom of the ascending trading channel. It held in prior tests after struggling to do so over the summer. T'is the season for this to bounce, so if it doesn't, that's another red flag.
I have a lot of plans over the holiday so I may be taking it easy on the commentaries for the next week or two. I do have a bullish outlook based on seasonality, but as I mentioned above, there is still some technical resistance on the charts that could derail the bullish case, and looking out past the holidays and into the first few months of 2025, I am not as optimistic.
I have a decent return for the year and I am not opposed to locking in those gains at some point and hibernating for the rest of the year if the market doesn't cooperate with the typically bullish seasonal calendar. My TSP Talk Plus subscribers will be alerted if and when any changes are made the system's current allocation. The other premium services will do the same.
Tomorrow (Tuesday) the stock market will be closing at 1 PM. You might be surprised to hear that Christmas Eve's bullish bias has turned negative in recent years. The TSP will be processing transactions as usual on Christmas Eve, but will be close on Wednesday for Christmas.
DWCPF (S-fund) is showing more key support being tested. The 100-day EMA was tested and held on Friday before the positive reversal occurred. I'm surprised it didn't finish filling in that open gap, but there is still about 20-points of that gap still open below the 100-day EMA.
ACWX (the I-fund tracking index) was down 0.04% on Friday, and the I-fund was given a 0.06% loss. The dollar was down sharply on Friday so the I-fund's struggle is a little surprising.
You can see the updated I-fund and other TSP share prices and returns, usually posted daily by 8:30 PM ET here: https://www.tsptalk.com/tsp_share_prices.php
BND (bonds / F-fund) rallied after the PCE data came in softer than expected. This chart really needed to hold in the 72 area to avoid a possible new leg lower. If inflation concerns have been lifted, the bond market may need only to avoid an over heated economy to start rebounding here.
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
Questions, comments, or issues with today's commentary? We can discuss it in the Forum.
Daily Market Commentary Archives
For more info our other premium services, please go here... www.tsptalk.com/premiums.php
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.
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The PCE Prices report is touted as a key Fed indicator for inflation and while it did little to change the Fed Funds Rate futures, it did ease investors' minds that inflation is not bouncing back to the degree we saw a couple of years ago.
The 14-day streak of consecutive negative breadth (more stocks down than up) was broken convincingly with Friday's rally.
There was some late selling late in the day, and when we look at many of the charts, we can see that it took the S&P 500 (C-fund) back below its 50-day EMA and the support line of its ascending trading channel, after pushing above those obstacles earlier in the day. I am going to assume some of that selling had to do with going into the weekend without a government budget deal, but since then a shutdown has been averted when a stopgap spending bill was signed into law over the weekend.
I highlighted with arrows, some potential key aspects that may dictate short and intermediate term direction. The red arrow is a nasty negative reversal day triggered by the Fed's recent pivot. Negative outside reversal days that large can be major market direction changers where selling rallies become more important then buying dips. It is the time of year that we can often overlook something like that in the short-term, but it's there and may come back to haunt the market.
The green arrow is the 20-day EMA where Friday's rally ran out of steam on Friday, after crashing below it on Wednesday.
The blue arrow is a possible positive outside reversal day, which is as bullish as the negative reversal day was bearish. The fact that is closed well off the highs and it couldn't quite close above Thursday's high, takes some of the wind out of that sail.
The purple circles are breakdowns below the 50-day EMA and it is pivotal for the bulls to recapture that quickly, as it did in September, otherwise the bears will be given a green light to pounce in that area.
Also, the gap from after Election Day is still open so that's always a possible target.
The yield on the 10-Year Treasury Note moved down on Friday, as you'd expect with that non-inflationary PCE report, but not only did it close well off the lows, but it reversed only after filling in an open gap from the day before, so it could have been just a technical pullback. If we start seeing yields hitting 4.6% heading toward 5% again, then investors have a pretty good reason for locking in a decent rate of return in bonds here instead of investing in a more risky, historically overvalued stock market.
I've shown this chart a few times in recent weeks showing that the Fed is adding liquidity to the system. The downtrend broke a couple of months ago. This is a very bullish development for stocks as liquidity (along with lower interest rates) is one of the best catalysts for the stock market. We know that interest rates may not be going much lower, but this is still on track to favor putting money to work in stocks and other assets like crypto.
Here's a couple of important charts flirting with key support levels: The market leading Dow Transportation Index, which unfortunately has been leading the market down recently, is testing its 200 day moving averages. It held - for the most part - in recent tests, so the bulls need this to turn up to keep the rest of the market from following it into a possible break down or even a bear market. It down just 10% from highs, so it is not in bear market territory yet, but trading below the 200-day average will give it a bearish spin.
The Nasdaq 100 (QQQ) is testing its 50-day EMA and the bottom of the ascending trading channel. It held in prior tests after struggling to do so over the summer. T'is the season for this to bounce, so if it doesn't, that's another red flag.
I have a lot of plans over the holiday so I may be taking it easy on the commentaries for the next week or two. I do have a bullish outlook based on seasonality, but as I mentioned above, there is still some technical resistance on the charts that could derail the bullish case, and looking out past the holidays and into the first few months of 2025, I am not as optimistic.
I have a decent return for the year and I am not opposed to locking in those gains at some point and hibernating for the rest of the year if the market doesn't cooperate with the typically bullish seasonal calendar. My TSP Talk Plus subscribers will be alerted if and when any changes are made the system's current allocation. The other premium services will do the same.
Tomorrow (Tuesday) the stock market will be closing at 1 PM. You might be surprised to hear that Christmas Eve's bullish bias has turned negative in recent years. The TSP will be processing transactions as usual on Christmas Eve, but will be close on Wednesday for Christmas.
DWCPF (S-fund) is showing more key support being tested. The 100-day EMA was tested and held on Friday before the positive reversal occurred. I'm surprised it didn't finish filling in that open gap, but there is still about 20-points of that gap still open below the 100-day EMA.
ACWX (the I-fund tracking index) was down 0.04% on Friday, and the I-fund was given a 0.06% loss. The dollar was down sharply on Friday so the I-fund's struggle is a little surprising.
You can see the updated I-fund and other TSP share prices and returns, usually posted daily by 8:30 PM ET here: https://www.tsptalk.com/tsp_share_prices.php
BND (bonds / F-fund) rallied after the PCE data came in softer than expected. This chart really needed to hold in the 72 area to avoid a possible new leg lower. If inflation concerns have been lifted, the bond market may need only to avoid an over heated economy to start rebounding here.
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
Questions, comments, or issues with today's commentary? We can discuss it in the Forum.
Daily Market Commentary Archives
For more info our other premium services, please go here... www.tsptalk.com/premiums.php
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.
