Stocks rallied strongly after a weak open and we saw many positive outside reversals on the charts yesterday. The Dow ended with a modest 78-point gain after an early 127-point loss. Stocks rallied into the release of the Fed Minutes, and continued after as it becomes fairly clear there will be no rate hike any time soon.
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The economic news seems to be bad on all fronts, and the fact that the economically sensitive Transports did not participate in yesterday's rally is a concern as is the strength in the safety plays of the dollar, gold, and bonds. There's also major red flags from the European banks, and in Italy it is a borderline disaster. So how does the market interpret that? As they have for the last few years: Investors don't want to get too bearish because when there's trouble in the air, a stimulus package / bailout could be announced at any time.
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The SPY (S&P 500 / C-Fund) posted a positive outside reversal day, which tends to be bullish for the short-term, but there is still some resistance overhead as it makes another pursuit of moving toward new highs. The rally yesterday filled a small open gap created on Tuesday, but the big gap is still looming well down below near 203.
The DWCPF (S-fund) had a good day but we didn't get the outside candlestick here. The question on this chart is whether the July rally created a peak, or if this week's action is creating a bull flag, which tend to break to the upside. Resistance is descending and there's big gap at 990.
The Nasdaq 100 (QQQ) broke above its descending resistance line, which is a bullish sign for this market leader that has been lagging this year. We've seen a lower high, and a lower low in June but that mini-breakout yesterday is a plus as it tries to fill the open gap near 109.50.
The EFA (I-fund) filled an open gap near 54.00 before reversing and closing near the highs, although it did close slightly lower on the day. The two red gaps are big and bigger, and this chart is not in the best shape trading below the 50-day EMA. The only thing that might gap that overhead gap filled in the short-term is some kind of stimulus announcement out of Europe.
The AGG (Bonds / F-fund) made new highs again as the bond bubble continues to grow, although the F-fund did have a small loss.
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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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