Stocks opened lower on Thursday, then chopped around in a fairly tight range, but the bears really didn't seem to have their hearts into trying to take the market down, when it felt like the bulls were giving them the opportunity. Internally, the damage continues to look bad, but we're still near the all-time highs on the big three indices. The Dow lost 55-points, or 0.2%, which was about what the S&P and Nasdaq did. Small caps lagged and bonds took a day of rest after their recent run higher.
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We've talked about the recent Hindenburg and Titanic warning signals and they sure sound daunting. Many major corrections have been preceded by these internal weakness flags that aren't showing up in the indices. Yesterday was another example.
In both the NYSE and Nasdaq we saw more new lows than highs. Yes, it was a down day, but this has been a trend for a while, yet the S&P, Dow, and Nasdaq are still just off all-time highs.
So how is it logical that, looking at these charts which are obviously closer to new 52-week highs than lows, that so many stocks within those indexes are making new lows?
The question I have is, if the internal market is already correcting, is it possible that the correction could get completed without harming the major indices in the process? Since many of the bellwether names like Apple or Microsoft are so heavily weighted in the Dow, Nasdaq, and S&P that, I suppose as long as they hang in there, the indexes could stay buoyant while many stocks correct. Famous last word, right?... "It's different this time?"
It's a head scratcher and to me, it may be trying to tell us that the market is ready to make a big move. The question is, which way will that be? Down seems like the obvious choice, so the upside would dish out the most pain and it sure seems to like to do that.
The S&P 500 (C-fund) pulled back on Wednesday and Thursday, filled that small open gap but has so far found support at the short-term rising trading channel. These always seem to go up longer than any indicator would lead us to believe is possible, but here it is again, 7 weeks off the October lows and still going.
The 2019 year-to-date chart shows that the S&P is at the top of the longer-term channel and just eyeballing it, it certainly seems vulnerable. But as we saw in July of this year, it could dance along the top of that channel without a meaningful pullback - just minor dips. Perhaps that is what we'll see in December, a normally good month for stocks?
The S-fund is also now tested the lower end of that short-term narrow rising channel and without a bounce today (Friday) that channel could break, and whether it does or doesn't could be telling for the short-term.
After filling its open gap near 10,750 on Wednesday, the Dow Transportation Index has now pulled back to the 50-day EMA. A strong market would find support there, but looking at this chart for the last several months, it seems t ignore the 50-day EMA and instead cuts through it, up or down, fairly easily. There were exceptions and the dip in late October was one.
The price of oil rallied strongly again yesterday and surprisingly, broke through the 200-day EMA with authority. As we talked about yesterday, this could be a follow-up reaction action from the light inventory report rally on Wednesday. However, that is still a bear flag that could reverse back down at any time.
Copper (above) on the other hand, was down yesterday. It is trading below the 50-day EMA, and is at the bottom of a small bear flag. This commodity is also very sensitive to the economic data so a breakdown could be a warnings sign.
The EFA (I-fund), like the S&P 500, tested the top of the 2019 channel and failed so far, and has been pulling back slightly. I would think that a test of the 50-day EMA would be a reasonable expectation, but also like U.S. stocks, there are many people now anticipating a pullback that the market may not oblige.
After being up 7 of the last 8 days, bonds took a breather on Thursday, as the AGG (bonds F-fund) dipped back to test the top of the bull flag it recently broke above. Technical analysis would have us believe that there's a good chance for that to hold as support, but there are some open gaps within the flag that may still be a draw.
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Thanks for reading. Have a great weekend!