Stocks finally took a break on Friday after several days of strong action. The Dow and S&P had modest losses while the Russell and the small caps saw minor gains.
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The dollar continues to move higher causing the I-fund to lag behind the U.S. indices, and bonds (F-fund) were mostly flat but closed well off the lows and are successfully hold above support.
Since the SPY (S&P 500 / C-fund) bottomed earlier this month, the market has gone virtually straight up for over two weeks. We've seen rallies like this over and over since the bear market ended in 2009, but this incline is even more steep than most we've seen. It took two weeks to fall, and two weeks to regain those losses, and normally stocks fall faster than they rise. What this means going forward remains to be seen, but the higher it goes, the less support will be underneath the SPY when it does pullback again.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
The weekly chart chows that the support from the long-term rising trading channel held just fine, and it it does have some room above before hitting the resistance from the top of the channel.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
The Russell 2000 (small caps) has lagged as it is still well below the early July highs. There is some resistance in this area but it's not very strong. I'm more concerned with what we're seeing from the European charts.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
The EFA (I-fund) fell back on Friday, with the help of more strength in the dollar. The 50-day EMA has held as resistance so far, and there is a descending resistance line coming off the July high.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
The French economy has been a catalyst for the European weakness and you can see that the CAC 40 backed down on Friday from the 50 and 200-day EMAs, and the descending resistance line. This looks like an important juncture for the CAC and the I-fund.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
The dollar is one of the reasons for the weakness in I-fund, which is the only TSP stock fund in negative territory in August. The dollar has been in a rising trend since it bottomed in May.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
Bonds actually look bullish here after Friday's positive reversal day. If bonds continue higher, while yields drop, it would seem to be an indication of weakness in the economy. Perhaps they are just reacting to the European economic weakness. Either way, it would be interesting if stocks and bonds continued higher at the same time. It's not the norm but the stock market momentum seems to be tough to stop.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
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Thanks for reading! We'll see you back here tomorrow.
Tom Crowley
Posted daily at TSP Talk Market Commentary
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