It was another big day for stocks on Friday as investors reacted positively to some very strong earnings reports from a few very big companies. The Dow gained 158-points.
On top of that, talks of a new round of stimulus in Europe also had investors putting money to work as fighting the Fed and overseas Central Banks has not been a good recipe for the bears. So whether you believe the economy is weakening, as many of the economic data shows, cheap money has been winning out for investors.
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If there was a problem with the recent strength, and this has been more visible over the last week, is that a lot of stocks are not participating and the rally and the gains in the indices are coming from a smaller group of stocks. That is evidenced by the relatively small gain in the small caps last week while the large caps added over 2%.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
The Dow Completion Index (small caps / S-Fund) is still lagging the large caps as there was no breakout from the inverted head and shoulders pattern that we have been watching. The 50-day EMA has also held stubbornly as resistance.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
The Dow Transportation Index came close to closing above the 200-day EMA for the first time in a long time on Friday, but it came up just short despite peaking above the line intraday. Otherwise, this has been a bullish run for the Transports. We saw a similar failure in August so there's a little more work to do before signaling an all's clear here.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
The EFA (EAFE Index / I-fund) broke above the rising resistance line but it then ran into the 200-day EMA.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
The stimulus talk out of Europe was the catalyst and you can see how excited the German DAX got on that news last week.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
The problem for the I-fund is that stimulus also triggered big rally in the dollar and we know that a strong dollar tends to make the I-fund lag the U.S. market's TSP stock funds.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
The AGG (bonds / F-fund) was down on Friday as investor shifted to stocks, but the trend is still positive, which is a slight concern for the stock market. If the economy was strong bond yields would be rising and bond prices would be falling, but that's not what we are seeing.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
Read more in today's TSP Talk Plus Report. We post more charts, indicators and analysis, plus discuss the allocations of the TSP and ETF Systems. For more information on how to gain access and a list of the benefits of being a subscriber, please go to: www.tsptalk.com/plus.php
Thanks for reading. We'll see you back here tomorrow.
Tom Crowley
Posted daily at www.tsptalk.com/comments.php
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