We went into Thursday having experienced a major sell-off just before Wednesday's close. Investors may have went into today's action a little uneasy, but we got a strong open. The bulls must have realized that the late Wednesday sell-off was a complete overreaction, so they went right back to work and pushed the indices higher, and in some cases, to new all-time highs.
The Dow gained 212-points on the day and the Wilshire 4500, what we use to track the S-fund, broke out and closed at an all-time high. After a one day pullback, oil rallied again, and that was a boost for stocks.
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The I-fund lagged a bit and bonds were slightly lower.
By the time some of you read this, the January jobs report will have been released (8:30 am ET). Estimates are looking for a gain of 225,000 jobs and an unemployment rate of 5.6% and that will obviously be the catalyst going into Friday's action.
The SPY (S&P 500 / C-fund) was able to break above that descending resistance line so, barring any decline that pushes it back into the wedge, the "fake-out" (circle) / breakout (arrow) pattern may be completed. The PMO indicator is now pointing up and is above its moving average. That's generally a bullish sign.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
The Wilshire 4500 (S-fund) pushed up to new all time highs and that is a breakout above the neckline of the inverted head and shoulders pattern that we have been watching for months.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
The weekly chart of the Russell 2000 shows the inverted head and shoulders for the small cap index, and it has not quite yet broken out yet.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
Here's what a typical inverted head and shoulders pattern looks like after it breaks out - like the Wilshire has done...
On the daily chart, however, there's a bit of a concerning head and shoulders pattern (as opposed to the above inverted H&S.) They can be bearish formations, although in a bull market they can actually give strong support at the neckline and that may be what we see this time. They are much more bearish ptterns during downtrends and bear markets.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
Here are two potential outcomes for a head and shoulders pattern, and the Russell may be doing the head test now.
But as I said, this is a bull market and H&S patterns are not always bearish in bull markets, but it's something to watch as a possibility while the head test is playing out.
The EFA (EAFE Index / I-fund) broke above the 200-day EMA, and that is a great step toward ending its bear market. If it can hold for a few days, it could be "risk on" for the I-fund again.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
The AGG (Bonds / F-fund) pulled back as investors were busy putting money into stocks, and perhaps they sold bonds to raise cash.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
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The January Jobs Report comes out on Friday and estimates are looking for a gain of 225,000 jobs and an unemployment rate of 5.6%. The jobs report contest is active in the forum.
Thanks for reading! Have a great weekend!
Tom Crowley
Posted daily at www.tsptalk.com/comments.php
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