The bears took the day off on Tuesday and the bulls took advantage. The Dow gained 188-points. Whether it was earnings, a pre-Fed rally, a pre-election catch-up rally, or Obama's dovish speech on Ebola, the indices raced higher with the Transportation index actually posting a new all-time high.
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It was a big day for the small caps. The I-fund gained 0.78%, and bonds (F-fund) had a small loss.
The big rally prior to the Fed's FOMC policy statement is not a first. We saw a big rally on September 16, the day before the release of the last FOMC policy statement. And as you will see in the charts below, the market topped 2 days later. The key to the Fed meeting, as far as stocks and bond prices go, is how the Fed addresses deflation, which is what is plaguing Europe right now.
The SPY (S&P 500 / C-fund) continues at a torrid pace coming off of the October 15 low. We've seen similar runs over the last couple of years, so what's to stop it? Well, the market environment wasn't exactly the same 6-weeks ago, but last month the market peaked two days after the September 17 FOMC policy statement was released. The buzz word in today's Fed policy statement will be "deflation."
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
A lot of folks were asking what propelled the indices yesterday and we heard a lot of answers from good earnings to a pre-Fed rally, etc., as I mentioned above. But what about the mid-election? We talked about this several times this summer and fall but when the market collapsed earlier this month we kind of dismissed the historically big returns that we usually see in October leading up to the mid-term elections.
If you can believe it after everything we've seen over the last 30-days, the C and S funds are now in positive territory for October, and we have three days left.
After several days of trying, the Wilshire 4500 (S-fund) blasted through the descending resistance line and the 50-day EMA, and the S-fund led the way yesterday with a gain over 2%.
Chart provided courtesy of www.stockcharts.comm, analysis by TSP Talk
The Russell 2000 (small caps) was the big winner yesterday and this looks convincing and tough to fight. It jumped over the dashed resistance line and the 200-day EMA, but it has come a long way in the last two weeks, and there is some overhead resistance near 1160.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
The Dow Transportation Index is the market leader and it had no problems making a new all-time high. But look at that angle of incline. It's not sustainable.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
The EFA (EAFE Index / I-fund) had a good day and has come well off the lows, but it is closing in on the resistance of the 50-day EMA, which will be a big test for a bear market, which the EAFE is in right now.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
Like a broken record repeating itself for a third straight day, the AGG (Bonds / F-fund) remains in a short-term downtrend since the peak on October 15. I believe the longer-term trend in bonds may have turned negative, but in the short-term there could be a relief rally. The 20-day EMA is being tested now.
Chart provided courtesy of www.stockcharts.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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