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TSP Talk: FOMO rally meets earnings

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The FOMO - fear of missing out - rally continued yesterday as the underinvested try to catch up to the indices that are running away from many of the bears. We came into this year with investor sentiment on the very bearish side so when the rally started, there was plenty of cash on the sidelines to keep the rally fueled. Add a more dovish sounding Fed and some decent earnings from Meta and the rally plowed ahead on Thursday. The Dow lagged again, but the broader indices were off to the races again. Earnings after the bell could change the tone.

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This is what FOMO looks like, when price is no longer the issue but instead money managers that are under exposed to stocks have to chase to get in the game. Same with short squeeze rallies as losing short positions have to be bought to get them out of the trade, adding fuel to the rally, so the bears were capitulating this week after a month long rally.

The charts were looking good as we have been talking about, but it was the fear of inflation and higher interest rates that scared investors and kept them bearish coming into this year. I was a little more bullish when the year started because of all of the negativity, but I didn't expect this good of a start to the new year and am also underinvested, so I find myself wondering if I need to chase -- or be patient.

The question now is whether these underinvested, many who are inflicted with FOMO, are going to jump on every dip, and today may be a good test. Apple, Amazon, Alphabet (GOOG), plus Starbucks and Ford will put some pressure on the current rally as earnings released after the bell yesterday had them trading lower in after hours trading. The S&P 500 futures lost about half of what they gained during yesterday's trading with those FANG stocks trading down 3 - 4% after hours, so that may be how we will start Friday's trading, although earnings conference calls were still going on and sometimes they can shift investor sentiment and turn the stocks around.

We will get the January jobs report before the opening bell this morning (Friday) and estimates are looking for a gain of 190,000 jobs and an unemployment rate of 3.6%. Wage growth may be the focus from this report, and could be the market mover since the Fed seems most concerned with the labor market and wage inflation.

I don't think I need to show too many charts and indicators since we all know what is happening: Stocks are breaking above resistance. Bonds are also rallying on a decline in yields as the Fed hints of a possible end in sight to their interest rate hikes. The dollar was up yesterday but it had fallen to new lows this week.

At this point, emotion, sentiment, maybe some resistance on the charts will dictate the action. It's just a matter of how far things can run before pulling back, how quickly dips will be bought, and how long is the memory of investors who bought rallies in 2022 that eventually failed?

Monday's commentary may be more interesting as we see how those earnings disappointments, plus the jobs report, effect the charts on Friday.

The S&P 500 (C-fund) continues to improve as the inverted head and shoulders pattern broke to the upside this week, it moved above all of it major moving averages in the last two weeks, and the 50-day EMA moved above the 200-day simple average yesterday. All good technical moves but after the monster rally over the last 4 weeks we do have some overbought conditions.

After the giant rally coming out of the December sell off, the DWCPF (S-fund) is now closing in on the August highs after blowing right past the November and September peaks. There is a little more room above if there is going to be some kind of double top pullback at those August highs.

The EFA (I-fund) didn't participate in the rally, posting a small loss with the dollar up 0.66%. This is allowing the returns of the US funds to catch up.

BND (bonds / F-fund) was up big early but faded after filling in an open gap from back in August. There is a possible rising wedge formation here and it is testing that resistance now, so maybe we can see a little rest here, although it did just breakout. A strong jobs report could do that as it would send yield higher.

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Thanks so much for reading. Have a great weekend!

Tom Crowley

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  1. FireWeatherMet's Avatar
    Rhetorical this a FOMO Rally, or really a classic breakout, where the market, after dropping 20-30% (40% S Fund) over 12 months, is now 4 months from its low, and is rising in a series of higher highs and higher lows, and busting thru 2 big barriers, the long term downward trendline & 200 EMA. Now that 50 day EMA crossed 200 EMA on some indices, and approaching on others. All of this comes on good news on 2 major fronts that took the market down in the first place, Concerns on 1) Inflation and 2)Recession are dwindling rapidly, esp with todays new jobs report of 500,000 new jobs.

    So wondering if "FOMO" might not be the right name for this rally, its likely these indicators are triggering the "Big Money" to start pouring into stocks more aggressively, including those institutions that have been positioned very defensively the past year. This upward channel seems very different from the sharp FOMO rallies of the past year.
  2. tsptalk's Avatar
    I wouldn't say I was distinguishing between the two, meaning a FOMO rally is a real rally that caught even money managers by surprise, and they are more worried about missing out than Joe Sixpack since their returns are their selling point. So this was institutional buying as well as bears turning bullish, etc.

    Technical analysis is technical analysis and a breakout is a breakout no matter the circumstances.

    It's the explosiveness that makes it feel FOMO.

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DWCPF (S Fund) (delayed)

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EFA (I Fund) (delayed)

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BND (F Fund) (delayed)

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