Stocks rallied sharply on Tuesday as the Dow jumped 222-points with a rally in oil being called the main catalyst. China's Shanghai Index stopped the bleeding with a small gain yesterday, and Japan rallied over 2%, so if the market was looking for a excuses to go higher after recently rebounding off of key moving averages, it found them. We saw 1% plus gains in indices across the board.
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The price of oil rallied nearly 3% as it continues to hang around recent highs. $43 and $42 look like key support levels so if stocks need this as an excuse to rally, then these levels need to hold.
The S&P 500 (C-Fund) rallied sharply and shot above the 200-day EMA placing it back above all three of the major moving averages that we follow. Technically, this is very bullish action, but there is still work to be done. Without a new high, this could easily be just a fake-out to get investors to jump in right before another downturn. We won't know until we see if the S&P can make new highs or not.
The prior consolidation areas on the S&P 500 broke to the downside and you can see that a series of lower highs were made within the consolidation just before the breakdowns. If we see the short-term descending trend within the current consolidation box break to the upside, we may have bullish something here. Otherwise it may be premature to get too bullish.
The DWCPF (S-fund) is also back above the major moving averages and is looking good at the moment, but without new highs, this could be a trap. Waiting and hoping, but still questionable.
The EFA (I-Fund) filled its open gap after blasting back above the 50-day EMA, but it is still below the 200-day EMA. It's possible that we just saw a higher low formed, but we'd need to see the April high taken out before that is confirmed. It doesn't seem like there's much wrong with this chart, but you don't want to see an index trading below the 200-day EMA in a bull market.
Japan's Nikkei rallied for a second straight day after three big losses. The problem is, it only rallied up to the top of the recent open gap and the 50-day EMA. If the rally in the U.S. market on Tuesday can have a positive impact on the Nikkei on Wednesday, that will be a big plus for this chart.
The AGG (Bonds / F-fund) was up slightly despite having a good reason to sell off with stocks rallying. When stocks rally while bonds and gold don't fall, that's a little concerning. Because bond yields are so low overseas, Japan's 10 year is negative and Germany's is barely above 0%, it's possible that bonds just look attractive to foreign investors and those looking for any kind of positive yield. The yield on the 10-year U.S. Treasury is 1.76%.
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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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