Stocks rallied for a second day, which is the first time we've seen back to back gains since the last week in March. The Dow jumped 187-points and the bulls are trying to take charge after the highest close since early December.
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Oil was down on the day, so that wasn't a factor. Interestingly, some safety plays like bonds and gold have been strong lately as well, although gold was down yesterday with the dollar being up big.
For example, lets say the S&P is trading at 2065 and the old high was 2070. Well, many traders who are betting against the market (short) might put in stops for their short positions at 2075 to get them out if new highs are made. Well, the newer program trading seems to be fearless in buying at new high knowing the stops are there willing to sell at slightly higher prices. Once the stops are taking out, the program buying is likely to stop and they've made their profits. Meanwhile, unsuspecting investors are worried they are missing out on the rally and start panic buying so as to not be left behind. By then the program traders have left the building and the buying may start to dry up. I don't know if that's what happened yesterday, but that's how that works.
The S&P 500 (C-Fund) moved to a multi-month high with yesterday's rally and unless we are seeing a "fake-out" like we saw last December, the market may be looking to start a new leg higher. If this is going to fail it would likely happen in the next day or two. Otherwise, we could be looking at testing the 2100 - 2120 area. Officially, this is still part of the test of the head of the head and shoulders pattern, and only new highs would negate that.
Why we are seeing new highs is a mystery to me, but I'm not much on fundamental analysis. What little I know wouldn't have me being very bullish myself based on the economic data, but stocks have been consolidating for some time, and when you actually look at a long-term chart, like the one below, you can see that the S&P 500 is only back to where it was in late 2014, so it has been a long consolidating base forming all of this time. It's just that it has come a long way since the February lows with little consolidation except for the one we saw to start April.
The Small Caps (S-fund) broke above the 200-day EMA with a vengeance, but it is already being tested as it hits the top of the rising trading channel.
The Dow Transpiration Index also blasted off breaking above key resistance plus breaking above the small bear flag. Not bad.
The EFA (EAFE Index / I-fund) finally broke above the 200-day EMA after months below it. There are open gaps below that always keep us looking behind us, so any further upside may come with some backing and filling along the way.
The AGG (Bonds / F-fund) was up slightly and held up rather well yesterday. The short-term rising support line was breached this week, but so far there has been no sign of a meaningful pullback, which is a little odd given the strength in stocks the last two days.
Read more in today's TSP Talk Plus Report. We post more charts, indicators and analysis, plus discuss the allocations of the TSP and ETF Systems. 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 www.tsptalk.com/comments.php
The legal stuff: This information is for educational purposes only! This is not advice or a recommendation. We do not give investment advice. Do not act on this data. Do not buy, sell or trade the funds mentioned herein based on this information. We may trade these funds differently than discussed above. We use additional methods and strategies to determine fund positions.
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Oil was down on the day, so that wasn't a factor. Interestingly, some safety plays like bonds and gold have been strong lately as well, although gold was down yesterday with the dollar being up big.
We saw several charts get above key resistance levels which appears could be a very bullish sign, but let's give it a few of days to confirm them because fake-outs are possible and we've see them out of certain formations. With program trading the programs are set up to take out stops and sometimes they run the stops before reversing back.For example, lets say the S&P is trading at 2065 and the old high was 2070. Well, many traders who are betting against the market (short) might put in stops for their short positions at 2075 to get them out if new highs are made. Well, the newer program trading seems to be fearless in buying at new high knowing the stops are there willing to sell at slightly higher prices. Once the stops are taking out, the program buying is likely to stop and they've made their profits. Meanwhile, unsuspecting investors are worried they are missing out on the rally and start panic buying so as to not be left behind. By then the program traders have left the building and the buying may start to dry up. I don't know if that's what happened yesterday, but that's how that works.
The S&P 500 (C-Fund) moved to a multi-month high with yesterday's rally and unless we are seeing a "fake-out" like we saw last December, the market may be looking to start a new leg higher. If this is going to fail it would likely happen in the next day or two. Otherwise, we could be looking at testing the 2100 - 2120 area. Officially, this is still part of the test of the head of the head and shoulders pattern, and only new highs would negate that.
Why we are seeing new highs is a mystery to me, but I'm not much on fundamental analysis. What little I know wouldn't have me being very bullish myself based on the economic data, but stocks have been consolidating for some time, and when you actually look at a long-term chart, like the one below, you can see that the S&P 500 is only back to where it was in late 2014, so it has been a long consolidating base forming all of this time. It's just that it has come a long way since the February lows with little consolidation except for the one we saw to start April.
The Small Caps (S-fund) broke above the 200-day EMA with a vengeance, but it is already being tested as it hits the top of the rising trading channel.
The Dow Transpiration Index also blasted off breaking above key resistance plus breaking above the small bear flag. Not bad.
The EFA (EAFE Index / I-fund) finally broke above the 200-day EMA after months below it. There are open gaps below that always keep us looking behind us, so any further upside may come with some backing and filling along the way.
The AGG (Bonds / F-fund) was up slightly and held up rather well yesterday. The short-term rising support line was breached this week, but so far there has been no sign of a meaningful pullback, which is a little odd given the strength in stocks the last two days.
Read more in today's TSP Talk Plus Report. We post more charts, indicators and analysis, plus discuss the allocations of the TSP and ETF Systems. 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 www.tsptalk.com/comments.php
The legal stuff: This information is for educational purposes only! This is not advice or a recommendation. We do not give investment advice. Do not act on this data. Do not buy, sell or trade the funds mentioned herein based on this information. We may trade these funds differently than discussed above. We use additional methods and strategies to determine fund positions.
