Stocks were mixed on Friday as the Dow gained 10-points and small caps inched up 0.11% while the S&P and Nasdaq saw minor losses. Geopolitical events may be shaking things up a bit but as we have been saying for a few days now, stocks need some kind of pause to regroup and establish some basing and support.
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The negative reversal day may be the start of some kind of pullback but I wouldn't get too bearish at this point. The action has been very good and any dip should bring in dip buyers who may have been left behind by the recent explosive rally. I see the 213 as some potentially good support.
If you look at the seasonality chart at the bottom of the commentary page you can see that the latter half of July is not as bullish as the first half, although during an election year it doesn't appear to be as pronounced.
I will be travelling Sunday and into Monday so I am going to cut this short. I'll leave Friday's commentary below as the analysis hasn't really changed. We're looking for some possible short-term weakness but I don't anticipation anything more than some healthy consolidation.
Thanks for reading. We'll see you back here tomorrow.
Tom Crowley
07/15/16
Stocks were up sharply again on Thursday with large cap stocks leading the way. The Dow gained 134-point on the day while small caps saw more modest gains. The Bank of England did not cut interest rates saying they will delay it until August, and the market seemed to be good with that as investors opted for stocks over the low yields we're seeing around the world.
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I know there is an urge to sell this rally. It has come very far, very quickly, but a lot of that was just recapturing the losses of the Brexit sell-off. The thing here now is, stocks are rising and are performing well. Whether they should be performing well may be your concern, but trying to step in front of a moving freight train can be very dangerous. Strong momentum is not easy to stop.
Even if you are bullish right now and in stocks, you probably should be hoping for a couple of flat to down days to try to create some more realistic support lines on the charts.
The SPY (S&P 500 / C-Fund) is obviously in an unsustainable angle of incline but this kind of action is more inclined (no pun intended) to create a bull flag than a long-term peak. Watch support level on any pullback to make sure they hold. That 213 area looks pretty solid at this point.
The DWCPF (S-fund) lagged for a second day yesterday but it remains in its sharp rising trading channel. There are a few open gaps that may get some attention, but there is also some room above if the rally wants to continue.
The Dow Transportation Index has now convincingly broke above its intermediate-term descending resistance line (red) this week and is now approaching the 2016 highs. But it is now bumping against a long-term resistance line (blue dashed) line so this is another test for this market leader. It looks like a huge cup and handle and that could turn out to be very bullish - if it breaks out.
The EFA (I-fund) is still reaching up to try to fill that large gap (green) created by the Brexit sell-off. It has opened some small gaps (red) along the way. It has closed above the 200-day EMA for a third straight day giving us some confirmation of the breakout, but let's see how it reacts to any pullback. We know how luring those gaps can be.
The AGG (Bonds / F-fund) was down but closed strongly. That 112.50 is holding as support but there still several open gaps that may need to help clean things up. Two of those small gaps are on the upside so short-term strength is possible.
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Thanks for reading. Have a great weekend. I will see you back here on Monday or Tuesday, as I may be taking Monday off.
Tom Crowley
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