TSP Talk Blog

Another big morning rally was reversed on Thursday. This one was a gap up open that eventually failed. Stocks were down again as the "sell the rallies" mentality has taken over. There are some signs that the market is overdone on the downside, but that could just mean a multi day rally is well overdue, but that could be sold as well. We're looking for one that should be more meaningful than these fleeting intraday rallies that repeatedly fail. The Dow lost just 7-points but the broader indices, especially small caps, continue to struggle. Bonds and the dollar rallied.

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After the bell Apple reported earnings and it was trading up nearly 5% in after hours trading, and being such a force in the U.S. indices, that move alone was enough to turn yesterday's 25-point loss in the S&P 500 futures into a small 2-point gain for the day when futures trading ceased at 5 PM ET yesterday evening.

We would normally expect that to translate into a positive open for the market on Friday morning, but in the current environment it doesn't seem to be about the catalyst du jour, but rather the catalyst du hour. I just made that word up, but you get it. The after hours 5% gain in Apple, as I write this, is before their conference call and you never know how that will go. They don't like to over promise so they may down play the results.

Update: During the conference call they said they expect the growth rate to decelerate in this next quarter, which isn't a surprise given the prior quarter was the holiday season, but again they are not prone to make their calls all rainbows and unicorns. The stock moved down a bit off its highs in after hours trading to be up only about 3%. Still, the S&P 500 futures just opened up 25-points.

AAPL was trading at about 166.50 after hours last I checked, which is right at an important pivot point. The 50-day EMA is at 166.60 so whichever way it goes from there could be very telling for the rest of the market.




The dollar made a big move as we are starting to see five interest rate hikes in 2022 being priced into the market - not just four. This kind of action is adding pressure to the commodities, bitcoin, and many other investments. No double top pullback on this chart yet. No fake out, although it's too early to say that. So the Fed's proposed action - they've done nothing yet - has had a big impact on the dollar, which normally would be falling in an inflationary market. The power of central banks.




The Volatility Index was down 4.6% yesterday - the first decline in the last 8 days. That's different, especially on a day when stocks were down. We've already had a spike reversal. Although there's no guarantees that we won't see a higher high, the pattern for the last year has been spikes, followed by a drift lower.




Apple's earnings should set the tone today, and that looks positive so far, but it has been difficult to trust any upside move recently. I'm glad the week is over because the volatility, which I normally enjoy for trading, is starting to get to me - mostly because of the intraday reversals that make us overly emotional. Next week will be another big week for earnings as the likes of Amazon, Google, and Facebook report.

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The S&P 500 (C-fund) has a bear flag working for it right now, and in a bearish market environment that doesn't sound very good. It could be a good reason to remain defensive but some of our indicators are so stretched on the oversold, over everything side, that I think it could do something like we saw in early December with a smaller, but similar bear flag.




The DWCPF (small caps / S-fund) just can't get out of its own way. An early gain near 1% flipped over to fall nearly 2% again. It is a clear test of the prior lows. We knew that was a possibility, but when it's happening it doesn't look very enticing. Again, the December lows looks kind of similar, but like December, I believe any decent rally may have to get sold. It's been about a month since we've seen back to back gains in the Russell 2000 or this S-fund.




The EFA (I-fund) took a big hit from the monster rally in the dollar. Despite most of the European markets closing with nice gains yesterday, the 0.85% gain in the dollar, along with losses in the U.S. afterward, may have been too much for the I-fund.




BND (Bonds / F-fund) rallied but if I was in this fund, which I am not, I'd be looking for every rally as an opportunity to sell. There's stiff resistance near 83.70.

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Thanks for reading. Have a great weekend!

Tom Crowley

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