Stocks were higher on Tuesday and that makes two big positive days to start the week after last week's choppy back and forth action. By about 2:30 pm ET the bears had given up and the bulls and the indices closed at their highs of the day.
The Dow closed with a gain of 305-points and most major indices ran right up to their overhead resistance. Now the bulls have to try to take it to the level and cross that resistance or the bears will be licking their chops for another opportunity because volatility is still alive and well.
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The dollar had a poor day and that helped the I-fund to big gain, and there may still be some fair value due today since much of the gains in the U.S. indices came after the European and and Asian markets closed.
Bonds fell sharply as investors declared, "risk on!" At least for a day.
The SPY (S&P 500 / C-fund) has retaken the 50-day EMA and it has been creating a large wedge or pennant formation that is getting closer to the apex. As we've talked about many times, often these formations give us a "fake out" move before reversing and breaking out in the other direction, and it's possible that is what we have been seeing develop. But it has to get above resistance or we could see a retest of the bottom of the wedge.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
The Wilshire 4500 (S-fund) moved back above the key 1058 level which has held three times before (blue arrows) and now it is trying to avoid making a third failed breakout above 1058. The red descending resistance line is being tested now so it's the bear's turn to make their move. If they don't show up on Wednesday, the bulls make take control of this consolidation and break this out to new highs.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
The big catalyst the market has turned to recently is the price of oil. After falling steadily for months, oil has posted three big days pushing it up to some key resistance. The 50-day EMA is aligned with one of the descending resistance lines. If this is a "dead cat bounce" in oil and we see it fall back down from this resistance, we could see stocks do the same thing.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
The EFA (EAFE Index / I-fund) broke out of the bull flag we mentioned yesterday and what a difference a couple of days made. In the last two days it went from what looked like a negative reversal and peak at resistance, to a bull flag, to a breakout above the bull flag. The problem now is the 200-day EMA. If that can be taken out, it puts a whole new bullish light on the I-fund
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
One of the main reasons for the jump in the EFA yesterday was the sharp decline in the dollar. The UUP gapped down at yesterday's open. I'd expect that to get filled sooner than later, but is this finally the start of a pullback in the dollar, which has been rallying for months?
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
The AGG (Bonds / F-fund) pulled back and filled the open gap from last Friday. There is some support at the current levels so bonds are at some support and stocks are at resistance. We're either ready for major breakouts, or reversals keeping the recent short-term trends intact.
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! We'll see you back here tomorrow.
Tom Crowley
Posted daily at TSP Talk Market Commentary
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.
