Stocks shot higher out of the gate on Thursday with high trading volume heading into today's quadruple witching expiration day, which should see even higher volume. The gap up open saw the S&P 500 up 30-points in the first few minutes of trading. That gap was actually filled (S&P went negative) just before 2PM ET, before a late rally pushed the index back into positive territory, closing somewhere in between the highs and lows of the day. Bond yields and the dollar continued to crater, helping prices of nearly everything move higher.
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Yesterday was a day for the weaker stocks of 2023 to play catch up while the Magnificent 7, or Nasdaq 100 Index, was actually down on the day. But outside of that, the near 1% decline in the dollar pushed prices higher in not only stocks, but bonds, oil, gold, silver, bitcoin, you name it.
We know now that the Fed has basically capitulated on interest rates becoming more dovish and not likely to raise rates again, and more likely to cut interest rates next year. That's good news for companies and their stock prices, but if there's a catch it's that the market has already priced in more cuts then the Fed is suggesting they will do, which could be telling us that yields have fallen too far, too fast, and may be due for some stabilizing after falling below the 200-day EMA and below the already rapidly declining trading channel. It's now below 4%, less than two months after hitting 5%. The trend is down, but it won't go down every day.
This 35 year chart of the the 10-year Treasury Yield shows us that we are in a new long term trend, and that trend is up. But within that massive trend there can be wide ranging smaller trends and right now it is trending lower since hitting 5%. The move from below 1% to 5% was swift and that angle of incline was not sustainable, but how low it goes on this pullback - no one knows yet.
The dollar took another dive yesterday as it makes a beeline for the open gap from late August, and the 100-day moving average. I am a broken record and I continue to say that open gaps on this chart almost always get filled, so there are very possible targets on each side of this chart now.
Right now the market is being fueled by a few things including the Fed and their new dovish outlook, but also there is a huge amount of cash in money markets and many FOMO investors are under-invested and that may keep the indices buoyant as the dips get bought despite the extreme overbought conditions in the short-term. We could see some profit taking here and there, and the holidays may influence the trading, but the dip buyers are lurking.
It is an options expiration day and I was surprised to see how high the trading volume was yesterday in the S&P 500 (C-fund) as we would expect that kind of trading today, not yesterday. We saw another high volume trading day near the end of December and I had noted that it often precedes a change in direction for the market, but clearly that didn't happen at the end of November, but here we go again after a near 4 billion share day yesterday. The spinning top candlestick is often a sign of a reversal, but the bulls may say otherwise.
Here's the chart I posted after that November spike in volume, which did not produce a reversal.
Revisiting the S-fund and Russell 2000 small caps' chart, yesterday pushed the indices above that trading channel that I had been calling a bear flag. These are weekly charts and it shows the nudge above resistance but they aren't quite above it enough to call it an official breakout, especially with one more day left in the week which will determine where these current candlesticks close - above or below that resistance line.
It could be an interesting day with most of the news behind us, a big reaction to Fed slowing a bit with a spinning top candlestick, and trading volume spiking around a quadruple witching expiration day.
EFA (I-fund) easily moved above its prior highs and resistance yesterday with yet another gap up opening. It's above resistance but so much unfinished business below. Whether some of those gaps get filled by the end of the year, or in 2024 if and when a recession does occur, we don't know, but some of them will get filled at some point.
BND (Bonds / F-fund) also gapped up as yields continue to spiral lower. Even though the 10-year yield was down sharply before the FOMC meeting on Wednesday (yields move counter to bond prices), there was no buy the rumor, sell the news reaction in the F-fund. It was buy the rumor, buy the news. How long can this last, however?
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
For more info our other premium services, please go here... www.tsptalk.com/premiums.html
Daily Market Commentary Archives
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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Yesterday was a day for the weaker stocks of 2023 to play catch up while the Magnificent 7, or Nasdaq 100 Index, was actually down on the day. But outside of that, the near 1% decline in the dollar pushed prices higher in not only stocks, but bonds, oil, gold, silver, bitcoin, you name it.
We know now that the Fed has basically capitulated on interest rates becoming more dovish and not likely to raise rates again, and more likely to cut interest rates next year. That's good news for companies and their stock prices, but if there's a catch it's that the market has already priced in more cuts then the Fed is suggesting they will do, which could be telling us that yields have fallen too far, too fast, and may be due for some stabilizing after falling below the 200-day EMA and below the already rapidly declining trading channel. It's now below 4%, less than two months after hitting 5%. The trend is down, but it won't go down every day.
This 35 year chart of the the 10-year Treasury Yield shows us that we are in a new long term trend, and that trend is up. But within that massive trend there can be wide ranging smaller trends and right now it is trending lower since hitting 5%. The move from below 1% to 5% was swift and that angle of incline was not sustainable, but how low it goes on this pullback - no one knows yet.
The dollar took another dive yesterday as it makes a beeline for the open gap from late August, and the 100-day moving average. I am a broken record and I continue to say that open gaps on this chart almost always get filled, so there are very possible targets on each side of this chart now.
Right now the market is being fueled by a few things including the Fed and their new dovish outlook, but also there is a huge amount of cash in money markets and many FOMO investors are under-invested and that may keep the indices buoyant as the dips get bought despite the extreme overbought conditions in the short-term. We could see some profit taking here and there, and the holidays may influence the trading, but the dip buyers are lurking.
It is an options expiration day and I was surprised to see how high the trading volume was yesterday in the S&P 500 (C-fund) as we would expect that kind of trading today, not yesterday. We saw another high volume trading day near the end of December and I had noted that it often precedes a change in direction for the market, but clearly that didn't happen at the end of November, but here we go again after a near 4 billion share day yesterday. The spinning top candlestick is often a sign of a reversal, but the bulls may say otherwise.
Here's the chart I posted after that November spike in volume, which did not produce a reversal.
Revisiting the S-fund and Russell 2000 small caps' chart, yesterday pushed the indices above that trading channel that I had been calling a bear flag. These are weekly charts and it shows the nudge above resistance but they aren't quite above it enough to call it an official breakout, especially with one more day left in the week which will determine where these current candlesticks close - above or below that resistance line.
It could be an interesting day with most of the news behind us, a big reaction to Fed slowing a bit with a spinning top candlestick, and trading volume spiking around a quadruple witching expiration day.
EFA (I-fund) easily moved above its prior highs and resistance yesterday with yet another gap up opening. It's above resistance but so much unfinished business below. Whether some of those gaps get filled by the end of the year, or in 2024 if and when a recession does occur, we don't know, but some of them will get filled at some point.
BND (Bonds / F-fund) also gapped up as yields continue to spiral lower. Even though the 10-year yield was down sharply before the FOMC meeting on Wednesday (yields move counter to bond prices), there was no buy the rumor, sell the news reaction in the F-fund. It was buy the rumor, buy the news. How long can this last, however?
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
For more info our other premium services, please go here... www.tsptalk.com/premiums.html
Daily Market Commentary Archives
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.
