Stocks rallied on Wednesday posting decent gains, but up a good chunk of the intraday gains were given back in the last hour of trading. The Dow gained 113-points, but it had been up 147 earlier so we continue to see dip buyers at the rising support, but profit takers at the descending resistance. Oil nears $50 a barrel.
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We had a couple of better than expected economic reports yesterday, which sent bond yields higher and of course, bond prices lower. Dividend paying stocks have been lagging as the bond yields rise. Otherwise, it was a solid day for the stock market.Trading volume was on the light side as investors still seem tentative to buy, yet on down days the volume picks up so there's still a little fear in the air. With the indices nearing all-time highs, is it possible that investors are actually getting nervous at the right time - near a top - or will stocks continue to climb the wall of worry?
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The SPY (S&P 500 / C-Fund) rallied most of the day but found some resistance near 216 as the support and resistance continue to converge. We started the week saying that something was going to have to give, but so far it has remained within the flag - although Tuesday's action saw an intraday break before climbing back into the pattern.
The DWCPF (small caps) hit the top of its bull flag and pulled back into the close, but ended the day with a solid 0.53% gain. The 50-day EMA and bottom of the flag are the areas that need to hold as support. Bull flags tend to break to the upside but the rest of the market may need to cooperate for that to happen.
The Dow Transportation Index closed above one of its resistance lines but couldn't quite make another intraday high, although yesterday's close was a new closing high for 2016. That's a good sign from this market leader.
The EFA (I-fund) was up but remains in a converging flag pattern like many of the indices. It's above the 50 and 200-day EMA's and it seems reasonable to expect a bullish outcome out of the flag, but it is October and we know it can be a rocky and unpredictable month.
The price of gold has tanked over the last several days and the reason I bring this up is because gold (and bonds) tend to be where investors go when stocks are in trouble. So, there's no signs of a safety play right now, and that may be a good sign. Perhaps it is just the strength in the dollar causing the decline, but still investors have to put there money somewhere, and if they don't like bonds or gold, stocks seem like a good alternative as we head into the strongest quarter of the year historically.
The AGG (Bonds / F-fund) continues to show weakness and may be creating a longer-term looking top, but we have said that before. This time with rates most likely rising in December, it seems like a top is logical. The economy is going have to remain solid for that to happen because any economic weakness and the rate hike may be off, which will send bonds rallying again.
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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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