Stocks opened the new holiday shortened week with the tail wagging the dog to some degree as hawkish comments from European Banks sent yields and the dollar higher yesterday, putting pricing pressure on just about everything here in the US including stocks, bonds, and commodities. The Dow lost 232-points while the S&P and Nasdaq saw more modest losses and again the small caps lagged those large cap indices. Bonds and the I-fund took direct hits because of the move up in yields and the dollar.
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The market opened on Tuesday morning with the dollar and Treasury Yields moving sharply higher after ECB members in the World Economic Forum in Davos told CNBC that there were threats to the inflationary picture that could mean rates do not move lower this year. Moreover, Federal Reserve Governor Christopher Waller indicated in a speech that the US central bank may ease monetary policy slower than Wall Street expects.
This led to a move in the dollar that seemed to be trying to happen, but resistance had held it back for a couple of weeks. That move higher is now a third large open gap on this chart.
Yields also move up sharply but the 10-year Treasury Yield was contained by its 200-day EMA - at least for a day, but if the dollar is any indication where the inflation / economy talk is going, then perhaps it's only a matter of time before this breaks higher as well. That is contrary to the recessionary outlook which had brought about lower yields and weaker dollar in recent months.
Was this just a post-holiday reversal, because even our inflation economic data reports couldn't push these up last week. Why would comments from central banks trump the data?
I had come into this week with yesterday's commentary speculating that last week's increase in the Fed balance sheet could trigger more upside as we saw a couple of times last year, so we may need to see yesterday's action reverse back up today to keep that theory alive.
With that a potential bust, it brings back the other theory of this year starting very similarly to the year 2000 where we saw a big rally into the end of 1999, followed but a cup formation that failed and eventually broke down after a double top.
In the comparison, we'd be right about where that blue arrow is above, and you can see what happened within a couple of days in 2000.
So, a Fed balance sheet boost or a repeat of 1999 - 2000? Or maybe something completely different, but other than some bank earnings, there's not much going on until next week when Microsoft reports earnings on Monday.
So, until then this is what is happening to the banking sector after the release of some of their earnings, and it's not exactly a perfect picture after a breakdown from the trend, and a lower low compared to the pullback at the start of the year. It's still above its 50-day EMA so it could be a garden variety pullback to that moving average, or even just a retracement of that large bullish candlestick from mid-December.
On the other hand, the Magnificent Seven component Microsoft will report earnings in less than a week and this chart looks pretty good after the breakout to new highs and the breakout level being a potential support area.
So we have a little battle going on between a couple of theories and a couple of sectors, each telling different stories.
The S&P 500 (C-fund) pulled back moderately yesterday, closing somewhere in the middle of its high and lows of the day suggesting some indecision from investors. A double top pullback is normal, holding above the 200-day EMA is bullish, but any declines below it and the early January low would be concerning. There is also a possible warning coming from the PMO momentum indicator which was and has been moving lower while the S&P was testing the previous highs, making it a negative divergence (see red arrows.). A little more more sideways action wouldn't be a bad thing after the two month rally, but anything under 4630 - 4650 would be a red flag.
DWCPF (S-fund) had been leading on the upside, and now on the down. The bearish looking flag broke down yesterday, as did the 20-day EMA. The 1850 area is similar to the 4630 area on the S&P 500 as it is where the 50-day EMA and the bottom of that large breakout candlestick from December are meeting.
EFA (I-fund) took a beating yesterday as the dollar rallied sharply after hawkish comments from a couple of central bank members. The 20-day EMA broke here as well, and the next level of support is in the 73.50 area. A new open gap opened yesterday and EFA would have to go up to 75 to fill it.
BND (bonds / F-fund) is trying to hold onto its 20-day EMA after yesterday's slam down with yields rallying on those hawkish central bank comments. That's not usually a lasting reason to turn the bond market around and could be knee-jerk, but let's see if there's any downside follow through or if the bond dip buyers show up.
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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The market opened on Tuesday morning with the dollar and Treasury Yields moving sharply higher after ECB members in the World Economic Forum in Davos told CNBC that there were threats to the inflationary picture that could mean rates do not move lower this year. Moreover, Federal Reserve Governor Christopher Waller indicated in a speech that the US central bank may ease monetary policy slower than Wall Street expects.
This led to a move in the dollar that seemed to be trying to happen, but resistance had held it back for a couple of weeks. That move higher is now a third large open gap on this chart.
Yields also move up sharply but the 10-year Treasury Yield was contained by its 200-day EMA - at least for a day, but if the dollar is any indication where the inflation / economy talk is going, then perhaps it's only a matter of time before this breaks higher as well. That is contrary to the recessionary outlook which had brought about lower yields and weaker dollar in recent months.
Was this just a post-holiday reversal, because even our inflation economic data reports couldn't push these up last week. Why would comments from central banks trump the data?
I had come into this week with yesterday's commentary speculating that last week's increase in the Fed balance sheet could trigger more upside as we saw a couple of times last year, so we may need to see yesterday's action reverse back up today to keep that theory alive.
With that a potential bust, it brings back the other theory of this year starting very similarly to the year 2000 where we saw a big rally into the end of 1999, followed but a cup formation that failed and eventually broke down after a double top.
In the comparison, we'd be right about where that blue arrow is above, and you can see what happened within a couple of days in 2000.
So, a Fed balance sheet boost or a repeat of 1999 - 2000? Or maybe something completely different, but other than some bank earnings, there's not much going on until next week when Microsoft reports earnings on Monday.
So, until then this is what is happening to the banking sector after the release of some of their earnings, and it's not exactly a perfect picture after a breakdown from the trend, and a lower low compared to the pullback at the start of the year. It's still above its 50-day EMA so it could be a garden variety pullback to that moving average, or even just a retracement of that large bullish candlestick from mid-December.
On the other hand, the Magnificent Seven component Microsoft will report earnings in less than a week and this chart looks pretty good after the breakout to new highs and the breakout level being a potential support area.
So we have a little battle going on between a couple of theories and a couple of sectors, each telling different stories.
The S&P 500 (C-fund) pulled back moderately yesterday, closing somewhere in the middle of its high and lows of the day suggesting some indecision from investors. A double top pullback is normal, holding above the 200-day EMA is bullish, but any declines below it and the early January low would be concerning. There is also a possible warning coming from the PMO momentum indicator which was and has been moving lower while the S&P was testing the previous highs, making it a negative divergence (see red arrows.). A little more more sideways action wouldn't be a bad thing after the two month rally, but anything under 4630 - 4650 would be a red flag.
DWCPF (S-fund) had been leading on the upside, and now on the down. The bearish looking flag broke down yesterday, as did the 20-day EMA. The 1850 area is similar to the 4630 area on the S&P 500 as it is where the 50-day EMA and the bottom of that large breakout candlestick from December are meeting.
EFA (I-fund) took a beating yesterday as the dollar rallied sharply after hawkish comments from a couple of central bank members. The 20-day EMA broke here as well, and the next level of support is in the 73.50 area. A new open gap opened yesterday and EFA would have to go up to 75 to fill it.
BND (bonds / F-fund) is trying to hold onto its 20-day EMA after yesterday's slam down with yields rallying on those hawkish central bank comments. That's not usually a lasting reason to turn the bond market around and could be knee-jerk, but let's see if there's any downside follow through or if the bond dip buyers show up.
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.
