Forget political primaries, yesterday was Super Tuesday - for the stock market! The Dow jumped 349-points on the heels of more stimulus announcements out of China. One thing the markets have been able to count on over the years, since the financial crisis, is Central Banks coming to the rescue, but is it sustainable?
The rally seems to be driven by short-covering, and by underinvested investors rushing to buy out of fear of missing out. That is how you get an explosive rally like we saw yesterday. It may have been more emotional than rational but the bulls have turned momentum on their side.
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On Friday morning we get the February jobs report and estimates are looking for a gain of 180,000 jobs, and an unemployment rate of 4.9%. The Jobs Report Contest is now open in the forum. Click here.
The indices have easily taken out many of the lines in the sand of resistance that we have been talking about, but we're creeping up on the biggest bear market resistance line in a few indices - the 200-day EMA.
The SPY (S&P 500 / C-Fund) hit the top of the rising wedge and is ever so close to the important 200-day EMA. Getting above the 200-day EMA in a bear market can be difficult, but there is a large open gap above 202 and that could also be a drawing force.
A wider view shows a large head and shoulders pattern, which tend to be bearish. You can see that the 200-day EMA stopped a rally in the left shoulder of the H&S in September before it broke out into the head of the H&S in October. So you can see how important the current level is for the bulls... and the bears.
Sometimes, and this isn't the most common outcome from a H&S, the head and shoulders pattern will run all the way up to test the middle of the head before it fades again. You've seen the chart below posted many times. The interesting thing with the current action is that a test of the head would fill that open gap.
The Dow Completion Index (small caps / S-Fund) took out some important resistance and there is a lot of room overhead before the 200-day EMA is tested, but there is a descending resistance line coming up near 950.
The price of oil had another nice day and it is above the key 50-day EMA, but that rising wedge still gives the bears a chance since they tend to break down. We'll see.
The EFA (EAFE Index / I-fund) broke above some resistance (red dashed line) but ran right into another resistance line and the 50-day EMA. The tests keep coming.
China's Shanghai Index was up yesterday after testing the 52-week lows on Monday. China's stimulus was supposed to be the reason for the rally in U.S. stocks so it will be interesting to see how the Shanghai Index reacts on Wednesday.
Bonds fell through the lower end of the bullish rising trading channel yesterday, but bounced off the 20-day EMA. Another test. Bonds should start to breakdown if stocks are going to continue to rally, so keep an eye on this one.
Read more in today's TSP Talk Plus Report. We post more charts, indicators and analysis, plus discuss the allocations of the TSP and ETF Systems. For more information on how to gain access and a list of the benefits of being a subscriber, please go to: www.tsptalk.com/plus.php
Thanks for reading. We'll see you back here tomorrow.
Tom Crowley
Posted daily at www.tsptalk.com/comments.php
The legal stuff: This information is for educational purposes only! This is not advice or a recommendation. We do not give investment advice. Do not act on this data. Do not buy, sell or trade the funds mentioned herein based on this information. We may trade these funds differently than discussed above. We use additional methods and strategies to determine fund positions.
The rally seems to be driven by short-covering, and by underinvested investors rushing to buy out of fear of missing out. That is how you get an explosive rally like we saw yesterday. It may have been more emotional than rational but the bulls have turned momentum on their side.
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On Friday morning we get the February jobs report and estimates are looking for a gain of 180,000 jobs, and an unemployment rate of 4.9%. The Jobs Report Contest is now open in the forum. Click here.
Speaking of the jobs report, how will the market react if we see a better than expected report? How about a weak one? With yesterday's rally being triggered by stimulus, the market may prefer a weaker report. But if the bull market is back, it may not matter. Stocks may just be looking for a reason to rally. The indices have easily taken out many of the lines in the sand of resistance that we have been talking about, but we're creeping up on the biggest bear market resistance line in a few indices - the 200-day EMA.
The SPY (S&P 500 / C-Fund) hit the top of the rising wedge and is ever so close to the important 200-day EMA. Getting above the 200-day EMA in a bear market can be difficult, but there is a large open gap above 202 and that could also be a drawing force.
A wider view shows a large head and shoulders pattern, which tend to be bearish. You can see that the 200-day EMA stopped a rally in the left shoulder of the H&S in September before it broke out into the head of the H&S in October. So you can see how important the current level is for the bulls... and the bears.
Sometimes, and this isn't the most common outcome from a H&S, the head and shoulders pattern will run all the way up to test the middle of the head before it fades again. You've seen the chart below posted many times. The interesting thing with the current action is that a test of the head would fill that open gap.
The Dow Completion Index (small caps / S-Fund) took out some important resistance and there is a lot of room overhead before the 200-day EMA is tested, but there is a descending resistance line coming up near 950.
The price of oil had another nice day and it is above the key 50-day EMA, but that rising wedge still gives the bears a chance since they tend to break down. We'll see.
The EFA (EAFE Index / I-fund) broke above some resistance (red dashed line) but ran right into another resistance line and the 50-day EMA. The tests keep coming.
China's Shanghai Index was up yesterday after testing the 52-week lows on Monday. China's stimulus was supposed to be the reason for the rally in U.S. stocks so it will be interesting to see how the Shanghai Index reacts on Wednesday.
Bonds fell through the lower end of the bullish rising trading channel yesterday, but bounced off the 20-day EMA. Another test. Bonds should start to breakdown if stocks are going to continue to rally, so keep an eye on this one.
Read more in today's TSP Talk Plus Report. We post more charts, indicators and analysis, plus discuss the allocations of the TSP and ETF Systems. For more information on how to gain access and a list of the benefits of being a subscriber, please go to: www.tsptalk.com/plus.php
Thanks for reading. We'll see you back here tomorrow.
Tom Crowley
Posted daily at www.tsptalk.com/comments.php
The legal stuff: This information is for educational purposes only! This is not advice or a recommendation. We do not give investment advice. Do not act on this data. Do not buy, sell or trade the funds mentioned herein based on this information. We may trade these funds differently than discussed above. We use additional methods and strategies to determine fund positions.
