Volatility has been increasing and just as it looked as if the early January losses in were going to be recovered, we got a sharp sell-off on Friday to end the month with a thud. The Dow lost 252-points as the 1% moves continue to pile up.
The Fed, oil, earnings, GDP, Durable goods, and Greece were the main catalysts during the busy week. Earnings will continue to roll in this week, and on Friday we'll get the January Jobs Report.
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Here are the final returns for January.
The I-fund managed to survive the weakness in stocks in January while bonds were the place to be. And after a year where the C-fund dominated, it turned into the laggard to start the New Year.
February is not one of the better months historically, but it has had some success in recent years. There will be more on that below.
The SPY (S&P 500 / C-fund) tested the low end of its recent sideways trading range and that makes about a half dozen times where it came close but held near 198 in January. If it keeps knocking on that support door, eventually someone is probably going to let it in. That's the short-term concern along with the rounded top we are seeing, so the market needs the bulls to step up here if it doesn't want to break down. The December low would be the next level of support, and then the 200-day EMA.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
The weekly chart shows a possible problem in that, depending how thick your crayon is, the S&P 500 closed below the rising support line for the first time since the near correction in October.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
The Wilshire 4500 (S-fund) pulled back sharply on Friday and closed below the 50-day EMA. This still looks pretty good in that, like the S&P 500, it is still within the right shoulder of an inverted head and shoulders pattern, and it has also formed a bullish cup and handle formation. The upside targets would be substantial IF it can break to the upside, but it keeps flirting with support and may not cooperate.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
The EFA (EAFE Index / I-fund) has started to pull back from the overhead resistance as we were concerned about. This is in a bear market so no matter how good it was looking there for a while, we assumed we would get a bearish outcome. You almost have to think that way until the resistance is taken out, which could happen - but it hasn't yet.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
The German DAX has not been the problem for the I-fund. It's strength has been surprising considering what we are seeing in the I-fund since it is one of the leaders in Europe. Those are new all-time highs for the DAX and that's what the bulls in the U.S. markets are looking for - a breakout.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
Oil has been falling precipitously for months, but it spiked sharply higher on Friday (+7.3%). Stocks temporarily rallied when oil turned around, but it was not enough to keep the stock market from selling off into the close. You can see that the 20-day EMA is the next level of resistance, and if oil can break above that, perhaps the U.S. stock market can finally breakout.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
The large oil related stocks have been beaten up recently with the decline in oil prices and a move higher may get them to stabilize. That is why we saw the Dow and S&P 500 lagging the other indices. I would think the $50 to $55 area could be the key. Stocks started to stumble once it fell below those levels.
Today is trading day #1 in February and the month has a fair record during the first couple of days, but overall it is historically one of the weaker months of the year for stocks.
Chart provided courtesy of www.sentimentrader.com
If you'd like more information, our forum member JTH wrote a good blog on February performance.
The AGG (Bonds / F-fund) gapped up on Friday as investors sold stocks and bought bonds. I don't know how high bonds can go, but this chart sure has a lot of bullish qualities. The open gap could mean a short-term pullback is coming to fill the gap, but the larger trend is up.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
The yield on the 10-year Treasury fell to the 1.65% area - the lowest we've seen in years. Bonds yields move counter to bond prices (and the F-fund) and this is what a bearish chart looks like - it starts in the top left hand corner and ends in the bottom right. A bull market looks like the chart above... The AGG starts in the lower left hand corner and ends in the top right.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
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Thanks for reading! We'll see you back here tomorrow.
Tom Crowley
Posted daily at TSP Talk Market Commentary
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