Stocks rallied out of the gate on Monday morning, but once again they peaked fairly early and drifted the lower the rest of the day. Despite the lack of afternoon buying, the major indices did post moderate gains and closed at new all-time highs. The Dow gained 60-points.
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The action was slow as we might expect during a mid-August trading day, but light volume trading can turn volatile if anything stirs up the market as we saw last August. But historically, August is slow and usually not the best month for stocks, but as we've said before, Augusts during election years tend to do better. The SPY (S&P 500 / C-Fund) closed at new highs again on Monday but the weak close created a small negative reversal day on the chart. Like we saw after the jobs report triggered breakout, this breakout will be tested at its prior resistance level near 219.
The DWCPF (S-fund) broke out of its small bull flag and above the recent highs. There is some overhead resistance but it is a rising, moving target at this point.
The price of oil had another big day and I think we can take bear flag off the table as it looks to have solidified a "V" bottom. It is still in a downtrend but since it has broken above the 20, 50, and 200-day EMAs, that $46 resistance level may not pose much of a problem. For stocks, remaining between $40 and $50 may be the Goldilocks area for oil.
The Dow Transportation Index hit some minor overhead resistance on Monday and backed off a bit. It appears to be in a small inverted head and shoulders pattern (red) which is within the right shoulder of a larger inverted head and shoulders pattern (blue). These chart formations should be bullish for this market leader but it does have to breakout above the resistance before we can talk upside targets.
The EFA (I-fund) made a new high for 2016 and closed above the April peak for the first time, as it rests right on that resistance line.
The AGG (Bonds / F-fund) remains in the flag formation and for a fifth straight day it is holding above the 20-day EMA.
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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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