Stocks opened fairly flat on Tuesday but drifted higher most of the day to close with moderate gains. Small caps led again as the Russell 2000 and our S-fund closed at a new all-time high. The Dow gained 36-points, also making a new closing high, the 11th new high of the year.
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So we saw a couple of indices move to new highs and as they say, a $90 stock can't get to $100 without going through $91, $92, etc., first. So with the Dow at a new high and getting deeper into the 19,000's, is 20,000 that far off? Eventually, but sometimes new highs will lead to short-term profit taking as we'll see in a few charts below.
This year's market has been strong but volatile, which traders normally like, but it has been a tough one for traders. Everyone expected a sell-off if Donald Trump won the election. Wrong. How about a "No" vote in the Brexit? That was surely going to kill the economy and the markets. Wrong. This weekend we had a warning from Italy after their "No" vote on their referendum and stocks were supposed to fall. Wrong again. So conventional wisdom and a little knowledge has hurt this year as the buy and hold folks who don't even pay attention are riding the waves to new highs. That's not always the case and it's market timers that tend to be less hurt when markets fall and the buy and holders who take the full brunt. But we'd need to see a market correction before that happens, and who knows when that will be? or now, the bulls will enjoy the ride.
We're one week away from a probable rate hike from the Fed (92% chance now) - first one in a year. Of course the last one in December 2015 led to a very rough patch for the market in late December / early January 2015. But as I just said, should we expect the opposite?
The SPY (S&P 500 / C-fund) spent some time in negative territory yesterday but the dip buyers were at the ready and it closed near the highs of the day. That small open gap just above 220 should get filled in the not too distant future. We've seen too many gaps left open recently and the market prefers tidiness. I noted some areas where volume started to dry up during a rally, and that could mean the charts and investors are getting a little overextended. Stocks don't necessarily go down when volume dries up, but the rally could flatten out at best.
The DWCPF (S-fund) made a new high again and despite the moderate pullback last week, may still need a little more consolidation before it makes a new leg higher.
The Russell 2000 (small caps) showed us last September that poking into new high territory is no guarantee that things will keep going higher.
Going back further into 2015 shows another higher high in the Russell 2000 that failed just prior to a breakdown.
The EFA (I-fund) added onto Monday's big rally with another big day, this time breaking above some key resistance in the EMA's. That's very interesting action considering the timing with the Italy referendum. It may also be that it had been so beaten down compared to U.S. stocks, that investors were looking outside the U.S. for bargains.
The price of oil is backing off from the recent highs and the top of the long-term trading range. It may just be profit taking after the production cut rally, or it could be technical analysis telling us it is going to remain in its range.
The AGG (bonds / F-fund) remains in a downtrend funk and has not been able to muster enough strength to post any kind of dead-cat bounce. It may take a pullback in stocks to trigger one.
Read more in today's TSP Talk Plus Report. We post more charts, indicators and analysis, plus discuss the allocations of the TSP and ETF Systems. For more information on how to gain access and a list of the benefits of being a subscriber, please go to: www.tsptalk.com/plus.php
Thanks for reading. We'll see you back here tomorrow.
Tom Crowley
Posted daily at www.tsptalk.com/comments.php
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