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TSP Talk: Stocks try to stabilize after Wednesday's sell off

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Stocks sold off early on Thursday but stabilized into the afternoon and the big three indices below moved into positive territory before a late push lower nudged them back into the red by the close. The Dow lost 171-points and the volatility continued. Bond yields moved to new highs again and that added the pressure on stock prices, as well as sending the F-fund to a new low.

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We get the December Jobs report this morning before the opening bell and estimates are looking for about 440,000 new jobs being added, which would be more than double the November number, and an unemployment rate of 4.1%. This will obviously set the tone for the day.

At this point its not easy to know how the market will react. Do you think the market wants a strong report, or a weak one? I would think a strong one could take the 4th rate hike talk up a notch. A weak one would get the stagflation talk going, but perhaps ease rate hike expectations.

Although we did see a couple attempts by the bulls yesterday, there was no urgency to buy. Stabilizing near break even for the S&P and Nasdaq, and the moderate gains in the S-fund were fine, but after the drubbing the indices took on Wednesday, the action on Thursday didn't tell us a whole lot. And with the jobs report on deck, I suppose there wasn't a lot of money being committed ahead of time.

Internally yesterday the NYSE numbers were solid, the Nasdaq was modestly negative, but the jump in new lows again in both is concerning.

The yield on the 10-Year Treasury made another new high up to 1.73%, which is quite a 4-day move, and this is what is putting pressure on tech and growth stocks, but also helping the financial sector which has been starving for some yield for years.

The dollar remains resilient although it has been moving mostly sideways since Thanksgiving. Since the rally off the lows of late October we've seen commodities like gold, silver, plus bitcoin get crushed, and in the case of those crypto-currencies, that's a lot of wealth factor being erased, which may have something to do with the stock market stumbling, outside of the obvious inflation and interest rate concerns.

After the bell yesterday there was an announcement from that old meme stock Game Stop (GME) who said they were getting into the NFT and crypto-currency markets, and the stock was up over 30% in after hours trading, along with a few other meme type stocks who went along for the ride. The question is, is this market environment able to handle something like this compared to the early 2021 bull ride? It sounds a little like a Hail Mary pass from GME, which is down about 75% from its insane early 2021 highs, but we'll see if yesterday's 30% after hours gain holds into today.

Admin Note: The 2022 version of the Guess the Dow Contest is posted in the forum and you'll have until Sunday to make your guess.

The S&P 500 / C-fund was down slightly on Thursday. It didn't quite come down to test the 50-day EMA, which could happen today if the jobs report doesn't trigger a big rally. The average is more than 100-point below yesterday's closing price so we could see some big moves if that is going to get tested. And if it does come down to test that average, would there be even more downside? Each previous test of the 50-day average failed and the S&P fell even further below the average before reversing back up. 4575 anyone?

DWCPF (small caps / S-fund) is a mess. This could be some kind of triple bottom and it is 12% below its highs, but I don't trust triple bottoms as much as double bottoms, and the longer term formation sure looks like an ugly bear flag with a lot of resistance at the top of that flag.

The EFA (I-fund) lagged yesterday after Wednesday's nasty negative outside reversal day near the top of those large and the smaller channels. The 50-day EMA has acted better as resistance when the EFA is below it, than it has as support when it's above it. So, I don't know how much we can trust that 50-day EMA as support if we see more downside.

BND (Bonds / F-fund) broke down below that channel on Thursday. It could be a fake-out as it likely took out a lot of the long bond holders' stops. Not the best looking chart as is, but let's see if it can get back above, especially if we get some kind of surprisingly weak jobs report. That would do it.

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Thanks for reading. Have a great weekend!

Tom Crowley

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