Stocks were mixed on Thursday but outside of the Nasdaq it was a mostly negative day, however, for a second day in a row the indices closed near the highs of the day. The Dow lagged losing 222-points, and while only 6 of the 30 Dow stocks were positive, it was the 8.6% loss in Disney that put the most pressure on the index. The Nasdaq remains buoyant as Amazon, Google, Meta, and Apple all closed positive. Bonds were up as yields fell on weaker than expected jobs data.
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The positive outside reversal day on Wednesday didn't do what is typical, and atypical technical action seems to be more typical over the last year or so. I'm not trying to make excuses, but while outside reversal days do tend to have follow through the next day, it's not always instant gratification. Sometimes it take a few days. The reversal action itself just tells us where buyers are likely to step in -- normally.
We actually had another positive reversal day yesterday, although this one was an "inside" reversal because the high and low of the day was inside the high and low of Wednesday's action. But the "kangaroo tails" do tell us that early selling is getting bought late. These patterns are fairly reliable but as we saw in April, there's no guarantees.
20% of S&P 500 stocks are actually within 5% of a 52-week high, but as we showed the other day, the Equal Weighted S&P 500 index is still lagging by quite a bit.
Most of the trouble out there are known, or at least the trouble I know about is obviously known. Maybe there is something else brewing underneath the surface?
One big unknown is the state of the regional banks. We were told that Silicon Valley Bank was an isolated incident. Then came First Republic Bank. And now we're watching PacWest's stock collapse. PacWest Bank (PACW) fell another 23% yesterday to 4.70, after having already dropped from $30 to $6 during this crisis. Small caps reacted negatively so maybe there are more surprises coming?
What else do we know? Is a recession getting priced in? Is a US default being priced in if the debt ceiling gets hit? I do believe that inflation easing has been priced in since we saw CPI data peak a long time ago, but that doesn't mean it can't reverse back up, which is what happened in the 1970's and that's why Fed Chair Powell has remained much more aggressively hawkish than people had expected.
So, has the market fully priced in the highest interest rate in decades, or is the Fed's potential pause on interest rates hikes priced in yet? Or, maybe the worst case scenario is if the market has already priced in the Fed pivoting to cutting rates some time this year, which may or may not come to fruition.
At the risk of sounding like a broken record, the charts are telling multiple stories. We know big tech has been strong and the Nasdaq indices look very impressive. But the small caps and Transportation Index, two major market leaders, look very vulnerable. The S&P 500 is somewhere in the middle being held up by the big tech stocks.
The small caps being held down is probably telling us that the regional bank issues are not ready to go away yet. But the Nasdaq breaking out to a new 2023 high this week may be telling us that big tech is fine with higher interest rates and earnings growth may not be as bad as many have been expecting.
We got some jobs data yesterday with the weekly initial jobless claims coming in higher than expected, and the PPI was a little cooler than expected, both of which should make the Fed happy. That data helped push the Yield on the 10-year Treasury down again, but for some reason the dollar rallied on that news, and that helped put pressure on stock and commodity prices yesterday.
We've had mixed results since the banking "crisis" started a couple of months ago, and perhaps it is only a matter of time before the other shoe drops. Two of the key charts that I am watching is the Nasdaq and the HYG, the High Yield Corporate Bond ETF. They both look pretty good right now and the market should hold up as long as they remain healthy. But if they start to deteriorate, we may get a head's up to watch for falling shoes.
The S&P 500 (C-fund) put in a double top in early May and has since pulled back and continued consolidating in a range which, if we squint our eyes, may be considered a bull flag (blue.) The bottom of the flag is still in play with the 4050 - 4075 areas being possible support, but the bulls are hoping that the bull flag eventually breaks to the upside.
DWCPF (S-fund) is getting held back by those small bank stocks, and the question is if it can make any progress if these banks continue their bearish action. With about 4500 stocks in this index, there's obviously a lot of other different types of companies in this fund besides bank stocks, but it remains below that 50-day EMA, which may be the door to changing things around here. Will someone open it?
The EFA (I-fund) was down and not too bad considering the big rally in the dollar yesterday. I am concerned about all of the open gaps below, but my immediate focus is on that 72.50 support area.
BND (Bonds / F-fund) is telling us that the bond market - the more savvy of investors - are not convinced about much as this has been moving sideways for two months now. Can it eventually breakout to the upside without filling that big open gap down below first?
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. 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 positive outside reversal day on Wednesday didn't do what is typical, and atypical technical action seems to be more typical over the last year or so. I'm not trying to make excuses, but while outside reversal days do tend to have follow through the next day, it's not always instant gratification. Sometimes it take a few days. The reversal action itself just tells us where buyers are likely to step in -- normally.
We actually had another positive reversal day yesterday, although this one was an "inside" reversal because the high and low of the day was inside the high and low of Wednesday's action. But the "kangaroo tails" do tell us that early selling is getting bought late. These patterns are fairly reliable but as we saw in April, there's no guarantees.
20% of S&P 500 stocks are actually within 5% of a 52-week high, but as we showed the other day, the Equal Weighted S&P 500 index is still lagging by quite a bit.
Most of the trouble out there are known, or at least the trouble I know about is obviously known. Maybe there is something else brewing underneath the surface?
One big unknown is the state of the regional banks. We were told that Silicon Valley Bank was an isolated incident. Then came First Republic Bank. And now we're watching PacWest's stock collapse. PacWest Bank (PACW) fell another 23% yesterday to 4.70, after having already dropped from $30 to $6 during this crisis. Small caps reacted negatively so maybe there are more surprises coming?
What else do we know? Is a recession getting priced in? Is a US default being priced in if the debt ceiling gets hit? I do believe that inflation easing has been priced in since we saw CPI data peak a long time ago, but that doesn't mean it can't reverse back up, which is what happened in the 1970's and that's why Fed Chair Powell has remained much more aggressively hawkish than people had expected.
So, has the market fully priced in the highest interest rate in decades, or is the Fed's potential pause on interest rates hikes priced in yet? Or, maybe the worst case scenario is if the market has already priced in the Fed pivoting to cutting rates some time this year, which may or may not come to fruition.
At the risk of sounding like a broken record, the charts are telling multiple stories. We know big tech has been strong and the Nasdaq indices look very impressive. But the small caps and Transportation Index, two major market leaders, look very vulnerable. The S&P 500 is somewhere in the middle being held up by the big tech stocks.
The small caps being held down is probably telling us that the regional bank issues are not ready to go away yet. But the Nasdaq breaking out to a new 2023 high this week may be telling us that big tech is fine with higher interest rates and earnings growth may not be as bad as many have been expecting.
We got some jobs data yesterday with the weekly initial jobless claims coming in higher than expected, and the PPI was a little cooler than expected, both of which should make the Fed happy. That data helped push the Yield on the 10-year Treasury down again, but for some reason the dollar rallied on that news, and that helped put pressure on stock and commodity prices yesterday.
We've had mixed results since the banking "crisis" started a couple of months ago, and perhaps it is only a matter of time before the other shoe drops. Two of the key charts that I am watching is the Nasdaq and the HYG, the High Yield Corporate Bond ETF. They both look pretty good right now and the market should hold up as long as they remain healthy. But if they start to deteriorate, we may get a head's up to watch for falling shoes.
The S&P 500 (C-fund) put in a double top in early May and has since pulled back and continued consolidating in a range which, if we squint our eyes, may be considered a bull flag (blue.) The bottom of the flag is still in play with the 4050 - 4075 areas being possible support, but the bulls are hoping that the bull flag eventually breaks to the upside.
DWCPF (S-fund) is getting held back by those small bank stocks, and the question is if it can make any progress if these banks continue their bearish action. With about 4500 stocks in this index, there's obviously a lot of other different types of companies in this fund besides bank stocks, but it remains below that 50-day EMA, which may be the door to changing things around here. Will someone open it?
The EFA (I-fund) was down and not too bad considering the big rally in the dollar yesterday. I am concerned about all of the open gaps below, but my immediate focus is on that 72.50 support area.
BND (Bonds / F-fund) is telling us that the bond market - the more savvy of investors - are not convinced about much as this has been moving sideways for two months now. Can it eventually breakout to the upside without filling that big open gap down below first?
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. 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.
