tsptalk's Market Talk

[tsptalk]

A lesson in how a pre-holiday reversal gets reversed after the holiday. Suddenly the stock market is worried about higher interest rates? Hasn't the Fed been warning?

Bonds are taking it hard today as well as the strong economic data lifted yields sending bond prices and the F-fund down. Surprisingly the resistance of the moving averages held for a month, and now the bear flag is playing out. But with stocks and bonds falling, where is the safety trade?

 

[tsptalk]

We're seeing some typical backing and filling of open gaps this morning, but the real test comes if and when the gaps get filled. The premise being, once the gap is filled, those who got caught in yesterday's losses at the open, get their money back, are satisfied, and then sell.

 

[tsptalk]

Friday was backing and filling the open gap. Today, small caps (S-fund) are trying again. I don't immediately trust Monday morning action, but this is impressive so far. Let's see where it is at the close.

 

[tsptalk]

The Volatility Index is trying to go up, but it keeps getting swatted back down.

 

[tsptalk]

Small caps (dwcpf) are popping above recent highs to start the day so the rising trend continues as it approached some prior early 2023 peaks.

The Transports are also testing their January peak.

The 10-year Treasury yield is sitting right on 4% but probably wants to fill that ADP triggered gap regardless of which way it eventually goes.

 

[tsptalk]

It's hard to argue with the price action and as usual momentum can take a market much further than seems reasonable, which may (or may not) mean a breakout here. But eventually even the trend runs out of room in the short-term. The more the bears expect it however, the less likely any correction will come. Sentiment is quite bullish but we still hear stories of people being underinvested, which can fuel more upside. I wish I knew at which point in this cycle we were closer to.

 

[JTH]

Sentiment is quite bullish but we still hear stories of people being underinvested, which can fuel more upside.

What is it called when you repeatedly sell high, and buy higher? That's been my primary strategy this year and it's working great... :cheesy:

 

[tsptalk]

I guess that's better than selling low and buying high. :smile:

 

[tsptalk]

The dollar is down sharply again today, and no surprise, prices are up. Remember that weird move in the dollar UUP chart in early June? I assumed it was a fluke trade. Well, here UUP is down close to testing it.

Also, the bear flag that goes back to mid-2022 just broke (if we exclude that fluky one day reversal.) The bear flag on the BND bond chart also recently broke down, so maybe bear flags are finally working again? For a while many were breaking to the upside for some reason.

If that's the case, the S-fund may need some help. It has moved slightly above the bull flag this week, but technically the bear flag is still there. It may not break down, but that's the tendency, and this one is at the top of the flag.

Too bearish? I don't want to be since the data is improving, but if the shoe (chart) fits...

 

[tsptalk]

It looks like the Fed rate hikes are working with several indications that inflation has come down. Since they are still hiking, two the question will be, have they gone too far. There is a lagging effect on the economy after rate hikes, and the Fed is apparently still planning at least one more cut.

No trouble in the labor market so the soft landing theory is gaining traction. If labor goes, recession talk will come back.

 

[tsptalk]

The dollar and yields are up today for a change, but not by much and they are losing steam from the earlier highs. The change in character in those markets since the jobs report and CPI has been dramatic, and of course the stock market has followed.

High Yield Corp. bonds are down sharply, but only enough to fill in yesterday's open gap.

 

[tsptalk]

Yields were down early but bouncing back. The dollar was up early, but gave away a lot of the gain so it's a choppy Monday.

I noticed a possible island reversal forming on the small caps. It's too early yo say if that's the way it will develop, but the set up is there.

There was one in June although the gap fill made it less of an island. Maybe a peninsula (I made that one up).

 

[tsptalk]

I noticed a possible island reversal forming on the small caps. It's too early yo say if that's the way it will develop, but the set up is there.

Nope. Just another mini-bull flag.

 

[tsptalk]

Another breakout. This one is the regional banks.

 

[tsptalk]

Stocks are up yet again as the melt-up continues. US stocks are up, but a big rally in the dollar this morning that is filling one of the overhead gaps, is holding the I-fund down for now.

Lots of earnings after the bell and next week's FOMC may stir things up eventually.

I am under the hood of an autotracker database issue this morning and may be quiet until I get that fixed.

 

[tsptalk]

Netflix and Tesla are some of the first major tech stock to report this quarter and both are down fairly sharply, falling below recent support. Is this setting the tone for the rest of FANG, which could be tough on stocks? However, the other FANG stocks may be more focused on A-I which may give investors something to be excited about. The question will be if their reports will be up to the incredible hype that the market has been pricing in.

We saw some early dip buyers off the open decline in the indices, and so far these losses in TSLA and NFLX aren't translating into anything too concerning in those major indices. The Nasdaq and small caps are down a half of a percent or more, but that seems like a drop in the bucket compared to the recent rally. It's early so we'll just have to see how this develops today.

 

[tsptalk]

It's an options expiration Friday which should spike trading volume. Options contract strike prices are being target and in general there usually aren't big swings. That tends to come during the week after options expiration an we all know how big next week is already with the interest rate hike and big tech earnings.

Yields are down and the dollar is screaming higher for a 3rd straight day. I'm surprised that the I-fund is holding up so well.

I'm not sure whether to view this as a bull flag or an island reversal formation on this High Yield Corp. Bond fund. The open gap makes the bull flag less likely. My guess is that the stocks market will follow the direction of the next biggest move here.

 

[tsptalk]

The I-fund and S-fund are down to start the week with the I-fund lagging because of yet another pop higher in he dollar. The Dow and S&P 500 are up so the C-fund is up nicely as well.

The Dow is going for number 11 in a row.

Microsoft reports on Tuesday, Alphabet (aka Google) and Meta (Facebook) report on Wednesday, then Apple and Amazon report next week on August 3rd.

 

[tsptalk]

The dollar easily cut through what I though could be tough resistance in the 28.10 area, but it gapped above it. It has pulled back in an attempt to fill that gap, and the key now is where it closes - above or below resistance.

Prices (esp. the I-fund stocks) tend to do better when the dollar is down.

Hmm, is this a breakout in yields or just more right shoulder?

Fed decision on interest rates at about 2 PM ET.

 

[tsptalk]

Microsoft's weak open weighed on the Dow and the futures were down over 100-points prior to the opening bell, jeopardizing the 12 day winning streak.

Well, it took about 3 minutes to fill the gap after it did open down about 90 points from yesterday's close.

That said, small caps got off to a good start this morning with the Russell 2000 up about 0.6%.