The day started off with more concerns about the coronavirus, and while we know this will pass just as other market scares from SARS, Ebola, etc., passed, the number of cases and confirmed deaths has risen and that could impact the economy in the short-term, even if it doesn't get much worse because people may not be as willing to travel knowing there are now some risks. We saw that in Transportation stocks recently, and the price of oil, although there was a strong positive reversal in the Transportation Index yesterday after a 3 and a half day sell-off.
With oil falling again, and bond yields still dropping, we could be seeing an early warning sign of an economic slowdown, but it may be too early to say with both trying to rebound off the lows yesterday. Even if it is just a knee-jerk reaction to the coronavirus, any drop off in travel could impact the global economy to some extent.
The 10-year yield will get some big attention if it falls below 1.5% (15.0 on the chart) again, although in the short-term, watch that 1.7% area. The stock market will not be all that happy about sub 1.5% rates, and a move below 1.7% might set the table for a test of that prior low.
That said, it hasn't stopped investors from buying. With stocks moving up relentlessly, the biggest fear out there right now may be the fear of missing more upside. It is getting bubble-like, but as always, bubbles can grow a lot bigger than we think possible -- before they burst!
Intel posted a strong earnings report after the bell on Thursday and should gap up on Friday morning. It's not the market leader it once was but even when it was, it's not as good of a story for stocks as it sounds. According to sentimenTrader.com, "If we buy [the Nasdaq] on the morning after it closed at a 52-week high and then Intel gapped up after an earnings release", it's "not a great risk/reward for buyers, with a high opportunity for losses in the coming days."
The S&P 500 (C-fund) is just a day off its all-time highs, yet investors couldn't hold back from buying that morning dip. So the S&P 500 tested the top of the trading channel and that middle dashed line, which held as support yet again. Could this recent rally's channel get any tighter?
The DWCPF (S-fund) finally fell below that old rising resistance line (dashed red) but the dip buyers couldn't stand it any longer, so they bought that decline and saw the index close back above the dashed line for a positive reversal day.
The Dow Transportation Index opened lower again and fell all the way down to the 50-day EMA before it reversed strongly to the upside and closed up 1.3%. That looks like the type of formation that could be a short-term low, but that may only true if there are no more threatening coronavirus headlines.
The EFA (I-fund) was down on the day but like the other indices, bounced back strongly off the lows. Thursday's price may not be what we expect (it hasn't been posted yet as of this writing) because we have seen some very whippy action in the final hours of trading making it tough on the TSP to give an accurate price, so they have to make adjustments the next day. We are due a positive adjustment from Wednesday but today's late rally in the U.S. may not be reflected in Thursday's I-fund price.
The High Yield Corporate Bond Fund, which has been a favorable catalyst for stocks for many months and years, has been lagging the last few days. Whether this is something meaningful or just a short-term blip remains to be seen, but if yesterday's lows don't hold, the 50-day EMA could be a target.
The AGG (F-fund / bonds) made another new high but it did close off the highs perhaps needing to fill in the open gap(s) below. There is support at 113.40, 113.30, and 113.15, and a pullback to test those wouldn't be a bad thing fir bonds.
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Thanks for reading. Have a great weekend!