Despite a weaker than expected GDP report, and the first negative GDP in 3 years, stocks yesterday rallied and closed near the highs of the day. The Dow gained 66-points while the S&P 500, and surprisingly the Nasdaq 100, made new 52-week highs.
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GDP came in negative for the first time in 3 years. The extreme winter whether gets much of the blame, but as we have been saying, the bond market's stubbornly low interest rates have been sniffing out weakness in the economy for a while.
Chart source: online.wsj.com
One quarter does not make a recession (that takes 2 or more consecutive negative GDP's), but growth has been an issue, and right now it seems companies are using mergers and acquisitions to try to continue to grow, rather then depend on economic growth.
The SPY (S&P 500 / C-fund) has now closed above the breakout area that we have been watching, for 5 consecutive days. That line represented the neckline of an inverted head and shoulders pattern and we basically have confirmation of that breakout with those 5 closes. Where the neckline and the rising support line meet near 189 or so, is where we should expect to find support on any pullback. A failed breakout at this point is less likely, but if it does fail it could be a major top. With the GDP being negative, that isn't out of the question, but the chart speaks for itself right now, and it's bullish.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
The Nasdaq 100 (QQQ) made a new high, the highest close in almost 14 years. The Tuesday morning gap remains open and a target for any pullback, and this is just day 1 of the 3 to 5 day closing breakout rule to confirm the breakout. I expect some kind of pullback here as we discussed on Thursday, and would be surprised if this does become a sustained breakout.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
The Russell 2000 has stalled in the 1140 area and right now it looks like it can go one of two ways. The prior peaks lasted two or three days before pushing down again, but this one has a bull flag look to it that could distinguish it from the prior peaks - although the one in early March also looked like a bull flag. We'll see.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
The Wilshire 4500 (S-fund) is still lagging but is attempting to make another meaningful higher high above 1010. The 20-day EMA is close to moving above the 50-day EMA, which would be bullish, but could also be a short-term overbought signal. This is shaping up, but still not out of the woods yet.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
Bonds slipped on Thursday, backing off from recent highs and may look to fill in those open gaps in the coming days.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
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Thanks for reading! Have a great weekend!
Tom Crowley
Posted daily at TSP Talk Market Commentary
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