Despite the stock index futures trading quite a bit lower in overnight trading Sunday into Monday, Monday morning saw a positive open and the tone was set as the indices closed just off the highs of the day. The Dow gained 165-points while the S&P added over 1%.
Small caps jumped right back into the game with another big day from the Russell 2000.
Many investors are still scratching their heads as to why this market continues to move higher. We know that the reaction to the Fed's raise / don't raise interest drama has been a bit schizophrenic, but for the most part bullish. The slowing economic data... not a problem. In general the 3rd quarter earnings have been disappointing ... no sweat.
AIG reported and missed earnings badly after the close yesterday. Estimates were looking for $1.03 a share, and it came in at $0.52. Revenues also came in about $1.5 billion short. Normally a report like that might send a stock down 10%, 20%, or more. AIG was down just 0.5% (one half percent) on the news in after hours trading.
On Friday morning we get the October jobs report and estimates are looking for a gain of 181.000 jobs, and an unemployment rate of 5.1%. The Jobs Report Contest is open in the forum. Click here.
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Often fundamentals and logic are not what drives the market, but rather momentum, sentiment, and technical analysis, and that seems to be the case now.
The SPY (S&P 500 / C-fund) popped above the rising resistance line we've been tracking, and to upside of the rising wedge - which is not typical. Either the stock market is extremely strong, or this is a little fake out to get more investors back in the market before profit taking kicks in, and I really don't know which it is at this point. Logic and history would tell me that we're due for a breather, but we have seen rallies like this in the past so it's possible it just keeps going.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
Here's a little comparison between this year's recovery off the bear market lows...
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
... and the one we saw in 2011. It was even in October of 2011 that we saw the big move higher off the lows, and just about the time we got into November, the market finally took a breather and pulled back for a few weeks before the upside continued.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
The Dow Completion Index (small caps / S-Fund) broke convincingly above the neckline of the inverted head and shoulders pattern's neckline - for a second time in 4 trading days. It moved above the descending resistance line (red) and is just about testing the 200-day EMA.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
The Dow Transportation Index also rallied yesterday and is once again testing the elusive 200-day EMA.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
To follow up on the Japanese Nikkei from Monday's report - it lost 400-points during Monday's trading pulling back from the 200-day EMA. It is not open for trading on Tuesday because of a holiday, so Monday's rally in U.S. stocks won't have an immediate impact.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
Today is the 2nd trading day in November. You can see that the 1st day played up to it's historical record. Day 2 is a little bearish but in general the month of November is historically a solid month for stocks.
Chart provided courtesy of www.sentimentrader.com, analysis by TSP Talk
The AGG (bonds / F-fund) seems to be in the process of creating a bear flag (orange) after opening that gap below the trading channel last week. That's three days below support so bonds are getting a little concerning here.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
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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