Stocks gapped open higher on Tuesday, and held onto those gains all day. The Dow gained 69-points while the S&P 500 and the Dow Transportation Index made new all-time highs. Small caps and the Nasdaq had big days as well, and are trying to play catch-up after months of lagging.
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A lot of folks expected to come back from the holiday weekend and see stocks down, and that would not have been a surprise considering the negative seasonality on the Tuesday after Memorial Day, plus the tendency to see reversals of action after a holiday weekend. That did not happen, and many bears are scratching their heads. Should they jump in now? Will those shorts be forced to cover (buy)? Is this a trap? An exhaustion gap?
The SPY (S&P 500 / C-fund) gapped higher on Tuesday and we know how much they like to get filled, so at some point we can expect to revisit 190.50 again. It doesn't have to happen right away, but the nature of gaps makes that most likely. It closed at a new all-time high and any pullback could find support at the old highs.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
This Nasdaq 100 (QQQ) has made an extraordinary run since the lows in April. I am very surprised that it is actually nearing new highs so quickly. The open gap could mean some short-term issues - since it probably wants to get filled. Plus double tops tend to fail to breakout the first time, but things do seem to turning around. I do think we could see a pullback to the 89 area (the recent resistance line) which will fill the gap and give investors a chance to digest the recent gains, but markets also like to move longer in one direction longer than seems reasonable.
Chart provided courtesy of of www.decisionpoint.com, analysis by TSP Talk
Ditto for the small caps, although they have not had as big of a meteoric rise off the lows as the Nasdaq, but we see the descending trend being broken, and it's a start. With the S&P and Nasdaq getting overbought, perhaps investors will see the relative value in small caps and give them a boost for a while?
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
The leading Dow Transportation Index also made a new high on Tuesday, and they have been moving steadily higher for months. This bodes well for the followers, although it is getting extended.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
Bonds rallied, and both of these charts actually look bullish. Can stocks and bonds both continue to rally? Probably not for long, but it does happen.
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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