Stocks opened lower on Monday, but as we have witnessed many times before, Monday morning gaps can quickly be reversed. The Dow picked up a modest gain of 21-points, but for a second straight day the Nasdaq and small caps led the way.
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The I-fund lagged the other stock funds while bonds were down and created some negative outside reversal days on the charts. Bonds look a little 'toppy' for the short-term, which may be a good sign for stocks - in the short-term.
The SPY (S&P 500 / C-fund) moved above the key 188 area, which has not been able to hold after several failed breakouts above it since March. Volume was quite light during yesterday's rally so that's a little concern. The bulls will need the big money getting on board if a breakout is going to hold.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
The Russell 2000 gained over 1% on the day moving the index back above the important 200-day EMA. That 3 to 5 day rule on closing above breakouts and below breakdown has saved me a few times from getting whipsawed. The chart is certainly nothing to write home about. The trend is down and it is below both the 20 and 50-day EMAs.
Chart provided courtesy of of of www.decisionpoint.com, analysis by TSP Talk
The Wilshire 4500 is pushing up against the top of a resistance line. If stocks can continue higher and resistance is broken, we could see a high volume move higher from here. I think investors may be tentative to put money to work here until small caps can prove themselves worthy.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
We saw some of the old high-flying Nasdaq stocks, which have pulled back sharply during the recent pullback, do well yesterday and break some of their downtrends. That could pave the way for the rest of the Nasdaq, and the small caps, to break their downtrends. The QQQ may be forming the right shoulder of a head and shoulders pattern, and as you can see, any breakout is going to have to cut through a lot of overhead resistance.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
The Transportation Index made anew all-time high again yesterday. If the followers can follow this leading index, we could see a nice ending to May, but rising wedge pattern is a concern as they tend to break down.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
Bonds were down and both the 20+ year bond, and the 7 to 10 year bond charts, produced negative outside reversal days. That usually produced more downside action, and with the open gaps looming below, I see the short-term being negative for bonds, and that could be bullish for stocks.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
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Thanks for reading! We'll see you back here tomorrow.
Tom Crowley
Posted daily at TSP Talk Market Commentary
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