After a modest down day on Monday, stocks came roaring back on Tuesday because... well, no one really knows, but the volatility continues. Was it the weak economic data, because that could explain it with the Fed's interest rate decision pending. Was it hope that the Fed would raise rates? Won't raise rates? Maybe it was because China's Shanghai Index was down 2.5% and 3.5% on Monday and Tuesday respectively? Obviously that's not the reason.
The Dow shot up 229-points most likely because, as we mentioned yesterday, some folks want to front run the interest rate decision, or short sellers were just getting out of the way and buying to cover their short positions. Whatever the motive, the volume was light so it likely was not the big money doing the buying it. Of course if the big money jumps on board and wants to take the market higher, the rally could get explosive, but so far the smaller money is doing the work and the question is, are they right about the market, or wrong? I don't think we have an answer yet as the indices remain in trading ranges.
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The I-fund lagged again as the dollar rallied, and bonds were down sharply.
Despite the big gains, volume continues to be light in front of the FOMC meeting and the rally in the S&P 500 (C-fund) has remained contained within a range, but we did see the PMO indicator move above its moving average and the S&P closed above the 20-day EMA for the first time since mid-August. All good signs but not out of the woods just yet.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
The weekly charts shows how far we are off the highs, but also off the lows. There is some resistance at yesterday's highs as it hit the old support line.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
The Dow Completion Index (small caps / S-Fund) is still in a clear bear flag but that could change with a big push higher. But for now, the bearish side has a better argument for this chart.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
The Transportation Index had a big day yesterday gaining 1.85% and that was enough to push it above the 50-day EMA and SMA (simple MA). It has managed to sneak above the 50-day MA's a few times over the last several months, but the rallies quickly failed in each incident.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
The Nasdaq 100 (QQQ) just about filled that open gap that we have watched for a month, and the 50-day EMA is being tested now. Great action up to this point, but there's more work to do here.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
The AGG (bonds / F-fund) broke down from the rising trading channel, which is bearish, but it also found support at the 200-day EMA. At this point it looks like bonds will just do the opposite of what stocks do as the two markets battle for assets.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
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Thanks for reading. We'll see you back here tomorrow.
Tom Crowley
Posted daily at www.tsptalk.com/comments.php
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