Stocks gapped up on Monday morning, mainly because Larry Summers decided to withdraw his name from the list of possible replacements for Fed Chairman Ben Bernanke. The emotional open was met with some selling later in the day as the indices closed well off their highs and ended the day mixed. The Dow ended the day up 119-points while the Nasdaq closed in negative territory because of a sell-off in Apple.
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[TD="align: right"] +0.0197%[/TD]
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[TD="align: right"] +0.19%[/TD]
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[TD="align: right"] +0.57%[/TD]
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[TD="align: right"] S-fund:[/TD]
[TD="align: right"] +0.35%[/TD]
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[TD="align: right"] I-fund:[/TD]
[TD="align: right"] +1.21%[/TD]
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Larry Summers was known to be less agreeable to quantitative easing, while the new front runner for Fed Chairman, Janet Yellen, is a pro-QE candidate. The market likes QE so stocks showed their appreciation for this change of events.
The S&P 500 (SPY) opened another gap yesterday so now there are two gaps below that need filling, and with a double top on the chart, we could see a little pullback from here. Even the bulls would probably welcome a little digestion of recent gains, get those gaps filled, and give them another buying opportunity.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
The Nasdaq put in a negative reversal day yesterday and closed down 4-points influenced by a sell-off in Apple. It had been leading the way up and is still above the August highs so it's possible the old high could act as support. If not, we could have a failed breakout on our hands and those don't usually turn out too well in the short-term.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
The IEF 7-10 year bond fund broke above its short-term trading channel yesterday. As we mentioned in yesterday's commentary, bond sentiment had become very bearish and a rally was a good possibility. The problem here is that yesterday's action produced a negative reversal day. Should we get some follow-through on the downside today or this week, we'll have to see if the old resistance becomes support.
Chart provided courtesy of www.sentimentrader.com , analysis by TSP Talk
The yield on the 10-year Treasury also fell through support showing a possible change in character for bonds. But the yield is still above the 50-day EMA so it's not totally bearish for yields (or bullish for bond prices).
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
The TLT, which is a longer-term bond fund, made a negative outside reversal day, which is a bearish sign. So we have some mixed signals here. Perhaps all the activity was just an emotional response to the Larry Summers news and things will go back to the prior trends. We'll see.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
The FOMC meeting starts today but I don't think we will get too much info until Wednesday, although sometimes they leak info early. I would have guessed that volume would be light and volatility would be low leading up to Wednesday's policy statement, but yesterday's action shows us that may not necessarily be the case.
In today's TSP Talk Plus report we'll take a look at the recent Barron's cover and what that means for stock, plus we'll look at the dollar and the I-fund. For more information on how to gain access and a list of the benefits of being a subscriber, please go to: www.tsptalk.com/plus.php
Thanks for reading! We'll see you back here tomorrow.
Tom Crowley
Posted daily at TSP Talk Market Commentary
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