Stocks opened lower on Friday but we did see buyers step up after the initial dip, and the day ended with mixed results. The Dow lost 34-points and small caps were off moderately, but the S&P 500 was up slightly while the Transportation Index and the Nasdaq led with solid gains.
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The S-fund continues to lag and a modest gain in the dollar held the I-fund back, while the large caps were up on the strength of some big tech stocks. Bonds were up slightly but are up against resistance.
For the week and month it has been the large caps leading with small caps falling behind, but all of the TSP funds had positive numbers.
The indices have come a long way in a short period of time since the lows earlier this month triggered by the debt situation in Greece, which has been basically resolved for now, and some trouble in China. The question is whether they can continue to rally and make new highs, which the Nasdaq has already done, before pulling back to fill some of the open gaps left behind.
The SPY (S&P500 / C-fund) broke above the resistance line that connected the two prior highs on Friday, but it still needs to get above May's high to make a new record high and avoid a triple top. You can see that the rally has been virtually straight up since the lows this month, and that angle of incline is not likely to sustain itself for too much longer, but for the bulls, a slow, steady climb would probably be preferred of over a parabolic move higher that would be destined to fail. The 20-day EMA crossed back above the 50-day EMA which is often a short-term overbought signal, but it is certainly not a bearish sign for stocks over-all.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
The weekly chart of the S&P 500 is much improved since it was testing the 50-week moving average several days ago. It looks like a bull market although the action has been mostly sideways since February. This could either be a rounding top or potentially a consolidation before the next leg higher. We'll continue to read the charts for clues.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
The Dow Completion Index (S-fund) has been lagging but looks to be trying to create a bull flag, which generally break to the upside. The problem is, we've seen similar bull flag-like formations on this chart, and they turned out to be short-term peaks. The open gaps on many of these charts are certainly potential targets for any pullbacks. As long as it stays above the 50-day EMA the bulls will be in charge.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
The Dow Transportation Index had a very nice day on Friday, although it backed off from its intraday high after hitting the descending resistance line and the 50-day EMA - both bear market rally killers. It will be put to the test early this week.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
The Nasdaq has been performing very well thanks to some strong earnings reports from large tech companies. We saw another gap open up on Friday after Google's earnings were released after the close on Thursday. New highs from one of the market leaders is a bullish sign, but it seems that fewer and fewer stocks in the Nasdaq Composite are leading the index upward.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
The EFA (EAFE index / I-fund) dipped on Friday and it tried to fill the small open gap from Thursday. The red gaps are all still open while the blue gap was filled on Thursday. The EFA has closed above the 50-day EMA for 4-straight days but still remains below the descending resistance line.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
The DAX is a major contributor to the I-fund with Germany being the leading economy in Europe. It broke above the descending trading channel last week and has now closed above it and the 50-day EMA for 5-straight days. There are some open gaps to keep an eye on, but perhaps with the Greece debt deal done, it can resume the upside.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
We did see a bit of a bullish move in China's Shanghai last week when the bearish trading channel was broken, but it remains below the 20 and 50-day EMA's and there's more work to be done - but this is a small start.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
The AGG (bonds / F-fund) moved above the filled gap and the 200-day EMA temporarily on Friday, but closed just below them. This is an interesting test. If that confluence of resistance does hold, it could mean investors might continue to opt for stocks over bonds. This chart is still bearish but it is trying to stabilize.
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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