Stocks opened sharply lower on Thursday but buyers were quick to jump on the dip and the Dow turned an early 100-point loss into a 64-point gain by the close. Bonds rallied.
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Small caps led the way gaining over 1%, while the I-fund lagged badly despite a big decline in the dollar. We should see the I-fund play catch up on Friday. By the way the dollar closed a large gap that was left open in December, but in Thursday's decline, it open another gap on the upside. I'll show that chart next week.
The SPY (S&P 500) created a positive outside day with the weak open and strong close. It is still staring at that open gap near 184, which should get filled, but once it does there could be some resistance. Volume has been drying up on this rally, which is a bit of a concern considering how it was spiking during the decline.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
According to sentimentrader.com, "Thursday was the 11th time that the S&P 500 fund, SPY, managed to open below the previous day's low and close above the previous day's high when within 2% of a 52-week high. Short-term weakness was common (it added to its gains over the next three days only 2 out of the 10 times). It closed at a 52-week high a median of 6 trading days later, with 7 of the 10 taking less than two weeks. Two of them took more than one month."
So the indices are overbought and this outside day actually produces a historically short-term weak scenario.
The small caps led the way with a big outside reversal day. We know they have been lagging and our question had been whether they would catch up, or if this leader's weakness was going to be a negative tell for the rest of the market. Thursday's action gave some credibility to the former.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
I probably should have posted this earlier in the weak, but I don't think seasonality is going to play a big roll in this kind of market environment. Today would be day -1 on this President's Day chart, and Tuesday is day +1. The market and the TSP will be closed on Monday so no transactions will be processed that day.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
Bonds rallied and recaptured the 200-day EMA on both charts. Very interesting considering that the stock market also rallied.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
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Thanks for reading! Have a great holiday weekend!
Tom Crowley
Posted daily at TSP Talk Market Commentary
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