Stocks were mixed again yesterday with the Dow adding 21-points, the S&P 500 was flat, the Nasdaq was down, while small caps and the Transports had big days once again. The rotation out of tech and into financials, airlines, and smaller companies continued.
These share prices reflect Friday and Monday's market action because of Veteran's Day.
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So while everyone is reading their papers and seeing in the news about these new highs being made in the Dow, some of the most popular and wildly held stocks like Amazon, Apple, Facebook, and Alphabet (Google) have been getting hit hard since the "Trump Rally" began and fund returns may not be as good as one might expect - unless investors have a good dose of small caps in their portfolios.
What exactly this action to the big name means is the question. Will the market follow them, or is this a good buying opportunity for investors in those big Tech names?
The SPY (S&P 500 / C-Fund) has been closing in a tight range since Wednesday's big move higher. It is possible that this is a pause before a pullback, although that isn't what happened in July during the same type of action after the Brexit vote where another push higher was triggered. It's interesting to note that breakout in July is about where the recent pullback found support. The key to whether it breaks up or down from here may be whether those big tech names are ready to move higher again.
The DWCPF (S-fund) has been on fire and actually gapped up again on Monday. But be careful chasing here. While this action looks good, often an initial breakaway gap turns into a rally, but after that a gap could be an exhaustion gap that happens closer to the end of a move. I would expect yesterday's gap to get filled sooner rather than later.
The Nasdaq 100 (QQQ) has been in another world lately because of those big techs that we've mentioned. This thing is trading close to the pre-election lows right now.
The Dow Transportation Index is a different story as it has gone virtually straight up since the election, gapping up on Monday again like the small caps. I drew that parallel channel to show where there could be some potential short-term resistance.
The EFA (I-fund) continues to lag and is actually down since Election Day, lagging the U.S. stocks dramatically.
The dollar has a lot to do with that as you can see the strength over the last couple of months, and yesterday we saw a breakout a new multi-month high. There may be some resistance at yesterday's highs, but that resistance line is rising.
The AGG (Bonds / F-fund) fell sharply yesterday, gapping down again. As we've been saying, bonds seems to have taken a turn into a bear market and probably a long term top has formed, but look for some kind of relief rally if stocks start to pullback at all.
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Thanks for reading. We'll see you back here tomorrow.
Tom Crowley
Posted daily at www.tsptalk.com/comments.php
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