Stocks opened higher on Friday and despite a big rally in oil, drifted slowly lower for most of the day to end with modest gains. The Dow closed up 35-points. The recent choppy action probably means we are likely to move sharply in one direction or the other soon, but in which direction is anybody's guess.
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The negative reversal day may suggest it would be to the downside, but if the choppiness continues we could see another positive day today leaving us all wondering what is next.
We saw more indications of a weak GDP as the new tracking number for the first quarter is just +0.1%, down from 0.4% earlier in the week. Most forecasts are now below 0.5% and that just isn't good, unless you look at it in term of what it means for interest rates, and that seems to be what is driving the market lately rather than earnings and economic growth.
The S&P 500 (C-Fund) tried to get back over that double dose of old support turned resistance near 2050, but the weak action on Friday afternoon pushed it below, although it does remain above the 20-day EMA. This rally looks like it may need a rest but it has actually moved basically sideways for the last 3-weeks, since mid-March, and that may be all it needed to gather strength. The PMO indicator may be telling us otherwise as it starts to move below its moving average.
The head and shoulders pattern has held at the neckline and not until we see a move to new highs above the blue dashed line will this be resolved. Of course the other way it could be resolved is if the test holds and in that case we could be back in the grips of the bear market.
The Small Caps (S-fund) was up on Friday and remains between the rising trading channel and the 20 and 200-day EMAs.
The Transportation Index fell below the 200-day EMA and the rising support line last week, but so far the 50-day EMA has held during the pullback and that is the key since there is little support below the 50-day EMA at the moment.
The EFA (EAFE Index / I-fund) filled one partially open gap (green) on Friday while opening another small gap near 56.0. It climbed back above the 50-day EMA, which is helpful. That open gap by 57.0 may want to get filled this week but this chart looks a little vulnerable after that. It must recapture the 200-day EMA before it looks any better.
The price of oil shot up 5.7% on Friday and it looks like the dance between the 50 and 200-day EMA's will continue. Rising oil should be a good sign for the economy, but instead the strength in oil recently has been triggered by a coordinated effort to reduce supply.
The price of gold looks more bullish after the breakout from the falling wedge late last week. The dollar has been weak and that tends to help gold, but inflation does not seem to be an issue so whatever the catalyst for gold is right now, may not be a good sign for stocks.
The AGG (Bonds / F-fund) was down slightly on Friday but continues to ride up the rising support line.
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Thanks for reading. We'll see you back here tomorrow.
Tom Crowley
Posted daily at www.tsptalk.com/comments.php
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