As we mentioned the other day, trading can be rather light during the few days after Labor Day weekend as traders and money managers batten down the hatches on their summer places, take time to settle back from vacation, and watch the action before jumping in. As a results we have seen some very slow and similar action over the last several days. The Dow ended the day down 12-points while the small caps had a strong day.
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Compare the chart of Wednesday's action above to the prior three day's intraday charts...
When volume picks up we'll see if the bears can finally push this relentlessly buoyant market lower, or if they want to buy into this long consolidation that is now months long.
With this relentless grind higher, you might expect investors to be getting giddy, but we're not there right now. Complacency is not really an issue as the CNN Fear & Greed indicator is actually just slightly in greed territory, a long way from any extremes.
CNN Money Fear & Greed Index
If we're looking for a catalyst, the ECB (European Central Bank) will release a policy decision today that could shake things up. They have a tendency to lean toward the dovish side - low rates and stimulus - so the only question may be how accommodative will they be? Of course any hawkish talk would likely send at least European stocks lower, and that would probably leak into the U.S. markets.
The S&P 500 (C-Fund) put in a ho hum day losing 0.01% yesterday but showing some resilience as it came back from early losses again. The trend is slightly up, it is trading above the 20, 50, and 200-day EMA's, and it's at the top right hand corner of the chart which tells us we're in a bull market. Unless we are trying to call a top there's not a lot of red flags here. Sure, it could be today that it all ends, but so far anybody trying to call a top over the last two months has been premature.
The DWCPF (S-Fund) made another new high yesterday but it is nearing the top of the trading channel that has held for quite some time. There's that small open gap created after the jobs report that has my attention and would be a downside target, as would the bottom of the channel, on any short-term weakness. But again, this is bullish activity.
After successfully breaking out of a small inverted head and shoulders pattern in August (blue), the Dow Transportation Index may have broken out of its larger inverted head and shoulders pattern (red), although the neckline can probably be drawn a number of ways and we may want to see a move above 8100 before it's official.
The EFA (I-fund) was up slightly and remained above the neckline of its large inverted head and shoulders pattern. Will an ECB announcement today turn this into a failed breakout, or will it be game on for the bulls?
The AGG (Bonds / F-fund) was up slightly yesterday but it tried and failed to breakout of its trading channel. It closed back within the channel. I can't imagine any major moves here prior to this month's FOMC meeting unless it is data driven. Perhaps the ECB policy decision could give it a push?
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Tom Crowley
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