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Market Commentary

December 3, 2021
 
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Stocks rebounded in early trading for a second straight day on Thursday.  The difference yesterday was that the rally held into the close.  The Dow gained over 600-points for a gain of nearly 2%, while the small caps gained 2.5%.  The S&P 500 lagged a bit getting held back by big tech and the likes of Apple, Amazon, Facebook, and Microsoft, which were all down on the day.  Bonds were mostly flat while yields and the dollar moved slightly higher.

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The best rallies in the market tend to come during sharp declines as everyone looks for the bottom and nobody wants to be the last one in once there is a turn.  Unfortunately it isn't always that easy and we can get explosive rallies that may only last a day or two, maybe even a week before the selling kicks back in.

Looking at small caps as an example shows just a straight down decline, and to get a "V": bottom off of that would be unusual, but not impossible, I suppose, considering the market tends to like to get is leaning the wrong way most of the time.

This is the Russell 2000 small caps ETF and you can see that it has gone straight down since the November 8th high.  That is unusual.  So to see this snap back to that high without a little back and forth, would be even more unusual.  A follow through day to the upside today would go a long way as it still closed below that moving average (blue), which had been holding as support all year.

      


Not that the action is anything like we saw in February and March of 2020 when COVID hit, but some of the biggest rallies that we ever see come during major melt down periods.  You can see the monster rallies that we had during that disastrous 30 day period for stocks in 2020.  Three of them were one day rallies with gains of 5% to nearly 10%, but none of them held the next day until a bottom was finally made on March 23.

           


I don't know how this will play out, but the market is certainly acting as if something bigger than a couple of mild symptom Covid variant cases is bothering it.  I suppose the fact that only vaccinated people have been infected so far, so that has to bring out some fear from those who thought they were protected.  And yes, the Fed is worried about inflation and higher interest rates are coming, so maybe it is a shift in the entire outlook for the market,  but small caps have been beaten down so badly that a big rally seems like a reasonable short-term expectation.  However, it wouldn't be too surprising to see this rollover again and test the lows in the next week or two, even if a low is in.  Good luck timing it, because it is tough. 

The yield on the 10-year Treasury moved up slightly and the bottom of that filled gap near 1.4% held again.  It had its double top pullback, so the only way I think that we see lower rates is if stocks rollover again as investors will run into bonds and send yields lower in that case.  Otherwise, with the Fed ready to raise rates next year, we're probably more likely to see 1.7% first, than 1.3%.

            


To make things even more interesting during this overly interesting week, we get the November jobs report this morning.  Estimates are looking for a gain of about 525,000 jobs and an unemployment rate of 4.5%.  The estimates have been so off recently that the only question will be, how far off will it be?  With the VIX near 28, investors are expecting more big moves, but in which direction?


The S&P 500 (C-fund) bounced back strongly from the recent sell off.  No surprises yesterday after Wednesday's big rally failed, but we can see where the S&P 500 came to rest yesterday, and that was under some stiff resistance.  At this point rallies either fail, or we can get a gap up above resistance, and a jobs report could push it either way in this sensitive time for traders and investors.

        


The DWCPF (S-fund) fell below two key moving averages this week and even the 2.46% gain yesterday only brought it back to the lows from Tuesday as the 200-day EMA held as resistance at yesterday's highs.  That's typical, and like I said above, we're likely to fail here at the 200 EMA, or gap up and go.

       


The EFA (I-fund) rallied but but don't forget that the I-fund was given a gain on Wednesday, so yesterday's price was adjusted down.  You can see how much the dollar has been impacting the EFA.

       


BND (Bonds / F-fund) was flat after it found some support near the top of that right shoulder of the head and shoulder pattern.

      
 

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Thanks for reading.  Have a great weekend!

Tom Crowley

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