Stocks opened higher on Monday but repeated a pattern that we have been seeing after recent breakouts from consolidations. The rally deteriorated in the afternoon and the Dow and S&P 500 barely managed to hold onto small gains, while the Nasdaq, small caps, the EFA, and the Transports were all down on the day. Jerome Powell will appear before congress over the next two days, so yesterday's tentative action may have had something to do with that. Yields opened lower but came roaring back to muddy the technical picture in bonds.
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Yes, Jerome Powell will testify in front of congress starting today at 10 AM ET, answering a barrage of questions regarding the economy and policy. Unfortunately we probably won't get much more than the two political parties throwing bombs at each other, using the Fed for confirmation bias about why their political opponent's policies are bad. We could get some tidbits of information regarding the economy and policy so for that reason it could impact the market over the next two days.
We came into Monday with a couple of examples of what could happen after a sharp positive reversal rally off a consolidation low. Here's the chart from yesterday. The situations weren't exactly the same each time, but as it turns out...
...the outcome was about the same. That is, a move higher early in the day, followed by a negative reversal to close near the lows of the day. But now what?
In the prior two examples, the one in December resolved itself to the down side with another week of losses. In January however, we saw the pop upward, a negative reversal to bring it back to even, and then the following day the rally resumed.
This chart shows a little more of how the sausage was being made. There was a "stealth" open gap between 4079 (the close on Jan 17 before a 3-day holiday weekend) and the high the day after the holiday, which was 4052. Yesterday that gap was filled. It didn't quite fill that real open gap between 4082 and 4089, so there may be some unfinished business in that area. There is also an open gap below 4000 so the action could be whippy in the coming days or weeks to fill those gaps. It's good for day trading but with our TSP early deadline that's much tougher to play since gaps can get filled in the morning, and the market could head completely in the other direction in the afternoon and into the close.
The small caps got slammed yesterday - perhaps by some profit taking in front of the Fed. Perhaps because of the late rally in yields. Either way, the Russell 2000 ETF chart looks very interesting after what looked like breakout above the bull flag pattern on Friday, but yesterday it erased those gains however it remains above the flag, depending on how you draw that flag.
The yield on the 10-year had another fake out yesterday - this time on the downside of that F-flag. That could be a positive reversal setting the tone for another attempt at an upside breakout, but Fed Powell may have a say in that over the next two days. Rising F-flags have a tendency to break down.
On Friday we will get the February jobs report. Estimates are looking for a gain of just over 200,000 jobs, which would be solid gains, but if you recall we are coming off that outlier January report where there were 517,000 new jobs reported. The unemployment rate is expected to remain at 3.4%.
The S&P 500 (C-fund) ran up to start the day, filled that stealth gap that I mentioned above (but is not shown here), then rolled back over. This is a key intermediate-term pivot point - above 4100 or below 4000. Last week's breakdown below 4000 and the support line may have triggered stop orders, which is often the last of the market timers willing to sell, and once they sold (were stopped out), then the bulls had the advantage. But the strong showing from the bulls late last week also may have triggered profit taking near that resistance. It's a battle.
The DWCPF (S-fund) hit the top of its flag on Friday, and again yesterday, and then rolled over. It's below the 20-day EMA, which is a warning, but the key 50 and 200-day averages are about 20 points lower, so there is some wiggle room here. This looks more like a bull flag than the action off the peak in the S&P 500, but if one breaks out I would suspect the other to follow - in either direction.
The EFA (I-fund) also failed at the top of its bull flag. Not a deal breaker, but rather disappointment for the bulls. The Fed could impact the dollar today with specific comments, and we know how much the dollar impacts this fund.
BND (bonds / F-fund) gave up some early gains but it remains above the neckline of its head and shoulders pattern.
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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Yes, Jerome Powell will testify in front of congress starting today at 10 AM ET, answering a barrage of questions regarding the economy and policy. Unfortunately we probably won't get much more than the two political parties throwing bombs at each other, using the Fed for confirmation bias about why their political opponent's policies are bad. We could get some tidbits of information regarding the economy and policy so for that reason it could impact the market over the next two days.
We came into Monday with a couple of examples of what could happen after a sharp positive reversal rally off a consolidation low. Here's the chart from yesterday. The situations weren't exactly the same each time, but as it turns out...
...the outcome was about the same. That is, a move higher early in the day, followed by a negative reversal to close near the lows of the day. But now what?
In the prior two examples, the one in December resolved itself to the down side with another week of losses. In January however, we saw the pop upward, a negative reversal to bring it back to even, and then the following day the rally resumed.
This chart shows a little more of how the sausage was being made. There was a "stealth" open gap between 4079 (the close on Jan 17 before a 3-day holiday weekend) and the high the day after the holiday, which was 4052. Yesterday that gap was filled. It didn't quite fill that real open gap between 4082 and 4089, so there may be some unfinished business in that area. There is also an open gap below 4000 so the action could be whippy in the coming days or weeks to fill those gaps. It's good for day trading but with our TSP early deadline that's much tougher to play since gaps can get filled in the morning, and the market could head completely in the other direction in the afternoon and into the close.
The small caps got slammed yesterday - perhaps by some profit taking in front of the Fed. Perhaps because of the late rally in yields. Either way, the Russell 2000 ETF chart looks very interesting after what looked like breakout above the bull flag pattern on Friday, but yesterday it erased those gains however it remains above the flag, depending on how you draw that flag.
The yield on the 10-year had another fake out yesterday - this time on the downside of that F-flag. That could be a positive reversal setting the tone for another attempt at an upside breakout, but Fed Powell may have a say in that over the next two days. Rising F-flags have a tendency to break down.
On Friday we will get the February jobs report. Estimates are looking for a gain of just over 200,000 jobs, which would be solid gains, but if you recall we are coming off that outlier January report where there were 517,000 new jobs reported. The unemployment rate is expected to remain at 3.4%.
The S&P 500 (C-fund) ran up to start the day, filled that stealth gap that I mentioned above (but is not shown here), then rolled back over. This is a key intermediate-term pivot point - above 4100 or below 4000. Last week's breakdown below 4000 and the support line may have triggered stop orders, which is often the last of the market timers willing to sell, and once they sold (were stopped out), then the bulls had the advantage. But the strong showing from the bulls late last week also may have triggered profit taking near that resistance. It's a battle.
The DWCPF (S-fund) hit the top of its flag on Friday, and again yesterday, and then rolled over. It's below the 20-day EMA, which is a warning, but the key 50 and 200-day averages are about 20 points lower, so there is some wiggle room here. This looks more like a bull flag than the action off the peak in the S&P 500, but if one breaks out I would suspect the other to follow - in either direction.
The EFA (I-fund) also failed at the top of its bull flag. Not a deal breaker, but rather disappointment for the bulls. The Fed could impact the dollar today with specific comments, and we know how much the dollar impacts this fund.
BND (bonds / F-fund) gave up some early gains but it remains above the neckline of its head and shoulders pattern.
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.
