Stocks closed higher for the 3rd time in four days yesterday, and the 91-point gain in the Dow pushed the index back into the black for 2014. Technology and Biotech stocks led the way and that helped the Nasdaq to a 1% gain.
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The broader indices also performed well with gains near 3/4 of a percent. The I-fund added 0.51% and surprising, bonds also rallied.
The SPY (S&P 500 / C-fund) jumped above the 50-day EMA (and the 20 EMA), and more importantly, closed above it. Volume was unimpressive, but it is late summer and many on Wall Street are still in vacation mode. That doesn't end until after Labor Day weekend.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
The PMO indicator has flattened out and looks like it is starting to curl up. There is an open gap within reach and in need of being filled. The concern here would be if the gap is filled and it acts as resistance.
The Wilshire 4500 (S-fund) had a nice day yesterday, but it has still not been able to get back above the 50-day EMA and is still flirting with the descending resistance line. The S-funders are hoping this index can follow the leaders.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
One of those leaders is the Nasdaq 100 (QQQ), which is just a stone's throw away from a new high, if you can believe that. There is an open gap that nearly got filled yesterday, and as I mentioned above with the S&P 500 analysis, what happens after the gap gets filled is very important. Sometimes filling the overhead gap can act as resistance and reverse the chart back down, so that's something I will be watching closely.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
The other index that we consider "the" market leader managed to close back above the 50-day EMA yesterday, which is a good sign, but it did create a little negative reversal tail that could be troublesome early on Thursday.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
The EFA (EAFE / I-fund) gapped open higher yesterday (red) and that is a short-term concern as it may look to fill it quickly, but it is back above the 200-day EMA and the big open gaps (blue), are well above the current level. This chart is broken to the core, but some of the biggest rallies in markets can come in the form of relief rallies during bear markets. The EAFE isn't in a bear market yet, but the decline has been extremely steep so the snap-back rally could be strong if it continues. I would be surprised if any rally can move much higher than the top of the open gap and 50-day EMA in the short-term.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
The AGG (bonds) broke out, and doing so on a day when stocks rallied is surprising to me, although maybe it's the other way around. We had a weaker than expected retail number and that sent rates down (bonds up) so the odd thing was that stocks rallied on the weak data.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
This 5-year chart of the AGG shows what can happen after a breakout from a long consolidation. The breakout in 2011 triggered a big rally, but during that summer of 2011, stocks were in a sharp decline. How low can yields go, and why would they go lower than they are now, except if the economy and the stock market are in trouble? Something's got to give.
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
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