Stocks soared yesterday, reversing the big losses we encountered on Monday, and we saw new highs on several major indices. The Dow gained 228-points and the TSP stock funds picked up nice gains after Monday's shake up.
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Bonds pulled back as apparently the markets are back into a "risk on" environment. It's as if a switch was flipped. I don't know if the situation in the Ukraine was actually reversed, but the market seemed to think so. The I-fund lagged some again as the dollar moved up to fill the open gap we talked about yesterday.
The SPY (S&P 500) shot up to new highs yesterday. This sets up a few scenarios. A breakout is a positive in general, but not always in the short-term. You can see that a new gap was opened up yesterday, and we know how much they like to get filled. For that to happen, almost all of Tuesday's gains will have to be given back.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
As I've posted many times, prior breakouts have tended to be better selling opportunities in the short-term, as 3 of the 4 recent major breakouts failed before the S&P bottomed and a new leg higher started.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
The small caps exploded yesterday and the Russell 2000 also opened up a large gap while moving back into new high territory. There is some intermediate-term resistance overhead...
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
... As well as some long-term resistance. Markets can move in one direction longer than would seem reasonable so who knows how long this rally will last? Charts that start in the bottom left hand corner and end in the top right occur in bull markets, and this one just keeps going. But that resistance line looks like it might be able to hold.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
The Transportation Index nearly filled that open gap that I have been obsessing over since it opened in January. It's not quite filled but a little upside follow through today should do it. Now there's a small gap near 131.50 that will keep my attention.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
The "dead cat bounce" in the dollar filled its open gap after it had broken down from the bear flag and the support line. I would suspect that the upside may be limited for the dollar here, that is if the technical analysis plays as as we would expect it to. But the dollar doesn't always cooperate.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
Bonds pulled back after testing the February 3rd high. Except for the sell-off in stocks on Monday, both stocks and bonds had been rallying, and we were questioning what that meant. I speculated that bond traders were more concerned with the situation in the Ukraine and that turned out to be a good move for them when the markets opened on Monday morning.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
But yesterday the situation may have changed (or has it?) and investors moved out of bonds and into stocks again. To me this is the place to watch. If bonds can hold up, I will expect a sharper pullback in stocks. If bonds start to retreat, the rally in stocks may have more legs. But I believe it will be the bond market leading the way - with stocks moving counter to what the bonds do. That's a little obvious but as we saw recently, they don't always move in opposite directions. Pay more attention to the direction of bonds.
The February jobs report will be reported on Friday and estimates are looking for somewhere near +163,000 jobs and an unemployment rate of 6.6%. The February jobs report will be reported on Friday and estimates are looking for somewhere near +163,000 jobs and an unemployment rate of 6.6%. We have our monthly jobs report contest going on right now in the forum. More info: Guess the Jobs Report Contest Feb'14.
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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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