Despite a relentless rally which has led to extended prices and indicators, investors continue to have an appetite for stocks. After a long winning streak was snapped on Thursday, stocks resumed their winning ways on Friday with some small to moderate gains. The Dow gained 4-points but the Nasdaq had another solid day gaining 0.4%.
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The SPY (S&P 500 / C-fund) hit new highs last week and if there's anything negative to say here it might be that we saw a 3-day flat top formation. The problem with that theory is that I see the S&P futures have been rallying late Sunday night and into Monday so we could see those new highs taken out on the open Tuesday morning. Normally I'd expect the breakout to come back to test the old resistance line before the rally resumes.
The weekly chart of the S&P 500 shows the power of the recent rally as it broke right through the long-term resistance line like a hot knife through butter. This really is unusual action and technically we're moving into seriously overextended territory. The question is whether the new policies of the administration warrants this type of action. I don't have the answer to that.
The DWCPF (S-fund) is testing its old resistance line and normally we'd expect that to hold as support now, if the rally isn't ready to run out of gas.
The Dow Transportation Index broke out on Wednesday of last week but has since dipped back below the resistance line again. It doesn't look like too much to be concerned about yet, but it is a crack.
The EFA (I-fund) remains in a rising wedge, which are normally bearish formations, but we've seen a few of them break to the upside in the U.S. indices recently, so I wouldn't make any assumptions here. The dollar bounced back from a two day sell-off and that put some pressure on the international stocks on Friday.
The dollar broke its recent uptrend on Thursday after Wednesday's negative reversal day On Friday it filled the open gap left by Thursday's weak open.
The AGG (bonds / F-fund) was up on Friday and it tested the bottom of its recent wedge formations. With the 200-day EMA overhead, this wedge may continue to play out for a while.
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Thanks for reading. We'll see you back here tomorrow.
Tom Crowley
