Another very whippy day for stocks as the quadruple witching expiration draws nearer. Stocks opened higher on Thursday, but the bears did make a move in early trading, pushing the indices uncomfortably lower before they bottomed about 11 AM ET. The bulls took over from there with just a small blip lower toward the end of the trading session. The Dow lost 63-points, but it had been down over 200points at the lows. The Nasdaq posted a modest gain, as did the small caps of the S-fund. The big mover was the dollar which rallied and set the tone for price pressure early on.
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The dollar was up 0.44%, which is a big move for the dollar, and early on stocks, bonds, gold, oil, bitcoin, you name it, were all down. But it did close at the lows of the day so we saw some buying pick up in stocks and oil, while gold still lost about $40. A large gap was opened above 24.86 and of course that could get filled rather quickly, but there is still another open gap up near the recent highs. That bear flag however, makes me thing the bears will be the larger force.
Today is quadruple witching expiration day and that means some big money managers and traders will have to close any September futures and options contracts, and there can be a lot at stake. Generally, on a light news day, the indices will hang around the strike prices of the contracts with the most volume, and in that case volatility is lighter than you'd think. But if the market has a reason to move, getting away from those strike prices can cause extreme swings as traders battle their way out of their positions, trying to get the best price.
With 10 trading days left in the quarter we could start seeing some window dressing from money manager's for their quarterly reports, which means we could see stocks that performed well get bought, and stocks that have struggled get sold. The money managers like to show their clients that they are in the stocks that have done the best in the previous quarter. But of course, you never know exactly how it will play out, especially with so many unknowns coming toward the end of the fiscal year as I have talked about before.
One thing I wanted to talk about that I recently came across was that the Federal Reserve is no longer going to publish their GDP numbers. This is after they stopped posting their M2 Money Supply number a while back. It seems they are getting more secretive, and that's rarely a good thing for us, I suspect.
I don't know if it is a coincidence but just as they stopped publishing the GDP, we saw other financial companies, who also make GDP projections, dramatically cut their 3rd quarter GDP estimates in early September. I'm not sure if I've heard this anywhere before. GDP estimates usually move in tenths of a percent, not 2 or 3%.
https://www.atlantafed.org/-/media/documents/cqer/researchcq/gdpnow/RealGDPTrackingSlides.pdf
Goldman was the most dramatic revision going from an estimate of +9.0% at the end of July to +3.5% a few days ago.
No wonder the savvy bond market is pushing yields lower. That makes more sense now.
And of course this is coming right when the Fed is considering tapering their bond buying because of the recovery in the economy. But 6%, 7%, or 9% is a lot different that 3 or 4%. Will that change the Fed's mind about tapering, or will they taper despite the weakening numbers?
All of this added to debt ceiling, budget negotiations, and potential shutdowns, and I can see why stocks have been floundering since September 2nd. The charts are in a position where they have easily rebounded in the past, so what happens next may tell us a lot about the character of the market as we head into the worst week of the year for stocks historically.
The S&P 500 (C-fund) posted a nice positive reversal day but it remains below that 20-day EMA, and this was the 4th time in 5 days that that has happened. That's a pretty big change from recent pullbacks, but so far the bulls have kept the bears from doing any major damage. The rising support line continues to hold.
The DWCPF (S-fund) also finished well off the lows and posted a solid gain. In the process it broke that steep descending resistance line, and each prior time that has happened, good things tended to follow. It did close above its 50-day EMA for a second straight day after a one day breakdown. The gap near 2190 remains open and could still be in play.
The EFA (EAFE Index / I-fund) has been consolidating in the old high area, and that's pretty decent resilience. I wish those gaps, at least one of them, will get filled because it would be tough for me to buy into to if it is above those gaps.
The BND (bonds / F-fund) was down as yields rallied and it fell back into the wedge formation - continuing to keep us guessing. Every time it tries to make a move higher, it has been getting smacked back down.
The Dow Transportation Index was up, but it actually had a negative reversal day as it closed near the lows of the day. The 100-day EMA swatted it back down after the morning rally. It is also below that pennant, which could now act as resistance.
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. Have a great weekend!
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 dollar was up 0.44%, which is a big move for the dollar, and early on stocks, bonds, gold, oil, bitcoin, you name it, were all down. But it did close at the lows of the day so we saw some buying pick up in stocks and oil, while gold still lost about $40. A large gap was opened above 24.86 and of course that could get filled rather quickly, but there is still another open gap up near the recent highs. That bear flag however, makes me thing the bears will be the larger force.
Today is quadruple witching expiration day and that means some big money managers and traders will have to close any September futures and options contracts, and there can be a lot at stake. Generally, on a light news day, the indices will hang around the strike prices of the contracts with the most volume, and in that case volatility is lighter than you'd think. But if the market has a reason to move, getting away from those strike prices can cause extreme swings as traders battle their way out of their positions, trying to get the best price.
With 10 trading days left in the quarter we could start seeing some window dressing from money manager's for their quarterly reports, which means we could see stocks that performed well get bought, and stocks that have struggled get sold. The money managers like to show their clients that they are in the stocks that have done the best in the previous quarter. But of course, you never know exactly how it will play out, especially with so many unknowns coming toward the end of the fiscal year as I have talked about before.
One thing I wanted to talk about that I recently came across was that the Federal Reserve is no longer going to publish their GDP numbers. This is after they stopped posting their M2 Money Supply number a while back. It seems they are getting more secretive, and that's rarely a good thing for us, I suspect.
I don't know if it is a coincidence but just as they stopped publishing the GDP, we saw other financial companies, who also make GDP projections, dramatically cut their 3rd quarter GDP estimates in early September. I'm not sure if I've heard this anywhere before. GDP estimates usually move in tenths of a percent, not 2 or 3%.
https://www.atlantafed.org/-/media/documents/cqer/researchcq/gdpnow/RealGDPTrackingSlides.pdf
Goldman was the most dramatic revision going from an estimate of +9.0% at the end of July to +3.5% a few days ago.
No wonder the savvy bond market is pushing yields lower. That makes more sense now.
And of course this is coming right when the Fed is considering tapering their bond buying because of the recovery in the economy. But 6%, 7%, or 9% is a lot different that 3 or 4%. Will that change the Fed's mind about tapering, or will they taper despite the weakening numbers?
All of this added to debt ceiling, budget negotiations, and potential shutdowns, and I can see why stocks have been floundering since September 2nd. The charts are in a position where they have easily rebounded in the past, so what happens next may tell us a lot about the character of the market as we head into the worst week of the year for stocks historically.
The S&P 500 (C-fund) posted a nice positive reversal day but it remains below that 20-day EMA, and this was the 4th time in 5 days that that has happened. That's a pretty big change from recent pullbacks, but so far the bulls have kept the bears from doing any major damage. The rising support line continues to hold.
The DWCPF (S-fund) also finished well off the lows and posted a solid gain. In the process it broke that steep descending resistance line, and each prior time that has happened, good things tended to follow. It did close above its 50-day EMA for a second straight day after a one day breakdown. The gap near 2190 remains open and could still be in play.
The EFA (EAFE Index / I-fund) has been consolidating in the old high area, and that's pretty decent resilience. I wish those gaps, at least one of them, will get filled because it would be tough for me to buy into to if it is above those gaps.
The BND (bonds / F-fund) was down as yields rallied and it fell back into the wedge formation - continuing to keep us guessing. Every time it tries to make a move higher, it has been getting smacked back down.
The Dow Transportation Index was up, but it actually had a negative reversal day as it closed near the lows of the day. The 100-day EMA swatted it back down after the morning rally. It is also below that pennant, which could now act as resistance.
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. Have a great weekend!
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.
