Stocks opened sharply lower On Wednesday, fought their way back in that first hour of trading in attempt to fill the gap, then chopped sideways to lower the rest of the afternoon before closing near the lows of the day. The Dow lost 411-points and that's more than 1600 points off the highs that were made just last week when everyone was celebrating it hitting 40,000. Yields and the dollar were the culprits again so both the stock and the bond funds took the hit.
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There isn't a whole lot of mystery here. While the charts were giving us some clues, it is clearly a case of yields moving up again, diminishing the chances of interest rate cuts from the Federal Reserve, and the market is getting a little haircut off the top from the April - May rally.
The 10-year Treasury Yield jumped to 4.62% yesterday and it seems to be making its way to the April highs. That peak occurred right about the time that the stock market was bottoming so holding near that old high near 4.74% is crucial, otherwise it could be a catalyst for creating lower lows in the stock market indices, below the April lows.
The dollar isn't helping the situation as it was up as well, and the higher high over last week is cemented in that low on May 14th.
Not all of the major indices are performing the same, as we saw new highs on the Nasdaq as recently as Tuesday of this week, while other indices are rolling over. Oscar Carboni of LiveWithOscar pointed out that this is rare, but we actually saw it during the start of the dotcom bubble when the Nasdaq kept rallying while the non-tech, or less tech heavy indices were rolling over. Not that I am predicting a 2+ year bear market like back then, but this divergence has happened before, and unfortunately the rest of the market dragged the Nasdaq down with it eventually.
The S&P 500 is also holding up better than the broader, smaller indices as it is still holding above the March peak, and that is a good place for it to hold - if it can hold here because...
... the Russell 2000 broader and smaller stock index fell below its rising support line and the 50-day EMA. I won't call it a breakdown yet unless it holds below these old support line for 3+ days.
The Dow Transportation Index is another story. This one has been waving the warning flag for a couple of weeks now. You were probably tired of me mentioning it. It made a new low for the year yesterday, and a new closing low, but it's trying to find support near the April 1st low.
I mentioned the Hindenburg Omen Signal yesterday, and we've been conditioned to ignore these since we have seen so many false alarms. It's too early to call this anything but a pullback in the stock market, but could this new HO Signal actually be signaling some kind of major decline coming?
We will get the PCE Pricing and Personal Spending and Income Reports on Friday.
The S&P 500 (C-fund) was addressed above but here we can see a little pick up in trading volume and the rolling over of the PMO indicator, which still has a clear negative divergence as the new highs in May did not move the PMO to the prior March highs. Technically there is an open gap near 5250 and this area needs to hold otherwise a pullback to the 50-day EMA could be the next target. Notice how the S&P stayed within the April negative outside reversal day's engulfing candlestick for several days before breaking down on day 6. Today will be day #4 within the recent engulfing candlestick (outside reversal day.)
The EFA (I-fund) lagged the US indices because of that rally in the dollar. That one did a number on the technical chart as it fell below the March highs.
BND (bonds / F-fund) gapped lower and that solidifies the failed attempt at a breakout above the longer-term descending resistance line.
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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There isn't a whole lot of mystery here. While the charts were giving us some clues, it is clearly a case of yields moving up again, diminishing the chances of interest rate cuts from the Federal Reserve, and the market is getting a little haircut off the top from the April - May rally.
The 10-year Treasury Yield jumped to 4.62% yesterday and it seems to be making its way to the April highs. That peak occurred right about the time that the stock market was bottoming so holding near that old high near 4.74% is crucial, otherwise it could be a catalyst for creating lower lows in the stock market indices, below the April lows.
The dollar isn't helping the situation as it was up as well, and the higher high over last week is cemented in that low on May 14th.
Not all of the major indices are performing the same, as we saw new highs on the Nasdaq as recently as Tuesday of this week, while other indices are rolling over. Oscar Carboni of LiveWithOscar pointed out that this is rare, but we actually saw it during the start of the dotcom bubble when the Nasdaq kept rallying while the non-tech, or less tech heavy indices were rolling over. Not that I am predicting a 2+ year bear market like back then, but this divergence has happened before, and unfortunately the rest of the market dragged the Nasdaq down with it eventually.
The S&P 500 is also holding up better than the broader, smaller indices as it is still holding above the March peak, and that is a good place for it to hold - if it can hold here because...
... the Russell 2000 broader and smaller stock index fell below its rising support line and the 50-day EMA. I won't call it a breakdown yet unless it holds below these old support line for 3+ days.
The Dow Transportation Index is another story. This one has been waving the warning flag for a couple of weeks now. You were probably tired of me mentioning it. It made a new low for the year yesterday, and a new closing low, but it's trying to find support near the April 1st low.
I mentioned the Hindenburg Omen Signal yesterday, and we've been conditioned to ignore these since we have seen so many false alarms. It's too early to call this anything but a pullback in the stock market, but could this new HO Signal actually be signaling some kind of major decline coming?
We will get the PCE Pricing and Personal Spending and Income Reports on Friday.
The S&P 500 (C-fund) was addressed above but here we can see a little pick up in trading volume and the rolling over of the PMO indicator, which still has a clear negative divergence as the new highs in May did not move the PMO to the prior March highs. Technically there is an open gap near 5250 and this area needs to hold otherwise a pullback to the 50-day EMA could be the next target. Notice how the S&P stayed within the April negative outside reversal day's engulfing candlestick for several days before breaking down on day 6. Today will be day #4 within the recent engulfing candlestick (outside reversal day.)
The EFA (I-fund) lagged the US indices because of that rally in the dollar. That one did a number on the technical chart as it fell below the March highs.
BND (bonds / F-fund) gapped lower and that solidifies the failed attempt at a breakout above the longer-term descending resistance line.
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.
