Stocks gapped up on Monday morning, held on all day, and closed with some strong gains. The Dow gained a healthy 191-points, or 0.68%, but some of the broader indices like the Nasdaq, small caps, and the Transports grabbed some big gains. It was interesting to see bonds up as well since it felt like a "risk on" kind of day, and bonds tend to get sold on those days.
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I have talked about the internal weakness that we have been seeing in the indicators despite the major indices continuing to rally. Yesterday the action couldn't have been better and we did see some improvement in the internals, but it was difficult to find a bearish word on the financial channels, which can be a concern.
When it feels like there is no reason to sell anything, you may have to step back and ask, isn't this how rallies tend to end? I don't know. I am seeing some concerns out there but even I love the action in the charts and feel way underinvested, and that kind of feeling tends to come latter in a market cycle.
Of course we're dealing with strong seasonal breezes at our backs as well so it feels wrong to be bearish, and that may be the case. Plus the action does not feel (I keep using that word, hmmm) like this time in 2018 when we saw a peak in October last year, but we did get a sharp rally to end November that turned out to be a big trap in December.
Seeing a Volatility Index (VIX) reading below 12.0 isn't an extreme historically, and we saw it several times in 2017 and 2018, but this year we hadn't had a close below 12.0 until yesterday so it seems like there is some complacency out there. The prior close below 12.0 came back in October of 2018 (red arrows). We saw a couple of intraday moves below 12.0 (blue) and even they turned into selling opportunities this year.
Yes, the action has been great, and we did get a healthy consolidation last week, although nothing serious at all. That's a good reason to be in stocks, so the battle now is between the current positive action, the positive seasonality this week and later next month, versus the multiple warnings signs that have not gone away. They've just been ignored so far. Don't forget that the yield curve inversion that we had earlier this year has a 7 for 7 record for forecasting a recession within 21 months of that inversion, and that first occurred last March or 8 months ago.
From www.tsp.gov: HOLIDAY CLOSING: Some financial markets will be closed on Thursday, November 28 in observance of the Thanksgiving Day holiday. The Thrift Savings Plan will also be closed. Transactions that would have been processed Thursday night (November 28) will be processed Friday night (November 29), at Friday's closing share prices.
The S&P 500 (C-fund) opened higher creating yet another gap. We see gaps opening often on the S&P 500 but in the past those gaps have been filled rather quickly. With yesterday's gap remaining open, that leaves 3 open gaps since the October low, which is rare.
The S-fund broke above the July highs with authority on Monday. That was impressive considering a double top pullback would not have been a surprise. We'll see if it passes the 3 - 5 day confirmation test.
I have been talking about the bull flags on the Russell 2000 (See Oct. 10 and Nov 5 Commentaries) for a while and yesterday the smaller one did breakout.
We also had our eye on the large weekly bull flag. When they are at the top of those flags, you never know if they are going back to test the bottom before they eventually breakout, and those warnings signs that we have been seeing certainly kept me from believing a breakout was a slam dunk. It had broken out earlier this month and came back a couple of times to test the top of the flag again, and yesterday's action seemed like a very bullish move. If it does hold, the upside target would be a very impressive gain indeed. Is it just time for small caps to finally catch up to the S&P 500?
The Dow Transportation Index had a good day making it look like the 50-day EMA test was a big success.
The EFA (I-fund) was up but still consolidating, which could be a precursor to a breakout.
The longer-term chart chart however, shows some overhead resistance.
Some recessionary concerns remain seeing the price of copper not acting too great with that bear flag forming. Below that we see that oil, while trending up, is still below the 200-day EMA and in a possible large bear flag.
Then there's the yield on the 10-year Treasury which was surprisingly down yesterday with stocks rallying. Yields tend to go down when economic data is weakening, and we have seen this break below its rising channel and 50-day EMA recently, creating a small bear flag in the process.
The AGG (bonds F-fund) was up with those yields falling and again, that's a little surprising with the strength in stocks yesterday. It was "risk on" for stocks, but a little safety play in the background in bonds.
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 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.
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I have talked about the internal weakness that we have been seeing in the indicators despite the major indices continuing to rally. Yesterday the action couldn't have been better and we did see some improvement in the internals, but it was difficult to find a bearish word on the financial channels, which can be a concern.
When it feels like there is no reason to sell anything, you may have to step back and ask, isn't this how rallies tend to end? I don't know. I am seeing some concerns out there but even I love the action in the charts and feel way underinvested, and that kind of feeling tends to come latter in a market cycle.
Of course we're dealing with strong seasonal breezes at our backs as well so it feels wrong to be bearish, and that may be the case. Plus the action does not feel (I keep using that word, hmmm) like this time in 2018 when we saw a peak in October last year, but we did get a sharp rally to end November that turned out to be a big trap in December.
Seeing a Volatility Index (VIX) reading below 12.0 isn't an extreme historically, and we saw it several times in 2017 and 2018, but this year we hadn't had a close below 12.0 until yesterday so it seems like there is some complacency out there. The prior close below 12.0 came back in October of 2018 (red arrows). We saw a couple of intraday moves below 12.0 (blue) and even they turned into selling opportunities this year.
Yes, the action has been great, and we did get a healthy consolidation last week, although nothing serious at all. That's a good reason to be in stocks, so the battle now is between the current positive action, the positive seasonality this week and later next month, versus the multiple warnings signs that have not gone away. They've just been ignored so far. Don't forget that the yield curve inversion that we had earlier this year has a 7 for 7 record for forecasting a recession within 21 months of that inversion, and that first occurred last March or 8 months ago.
From www.tsp.gov: HOLIDAY CLOSING: Some financial markets will be closed on Thursday, November 28 in observance of the Thanksgiving Day holiday. The Thrift Savings Plan will also be closed. Transactions that would have been processed Thursday night (November 28) will be processed Friday night (November 29), at Friday's closing share prices.
The S&P 500 (C-fund) opened higher creating yet another gap. We see gaps opening often on the S&P 500 but in the past those gaps have been filled rather quickly. With yesterday's gap remaining open, that leaves 3 open gaps since the October low, which is rare.
The S-fund broke above the July highs with authority on Monday. That was impressive considering a double top pullback would not have been a surprise. We'll see if it passes the 3 - 5 day confirmation test.
I have been talking about the bull flags on the Russell 2000 (See Oct. 10 and Nov 5 Commentaries) for a while and yesterday the smaller one did breakout.
We also had our eye on the large weekly bull flag. When they are at the top of those flags, you never know if they are going back to test the bottom before they eventually breakout, and those warnings signs that we have been seeing certainly kept me from believing a breakout was a slam dunk. It had broken out earlier this month and came back a couple of times to test the top of the flag again, and yesterday's action seemed like a very bullish move. If it does hold, the upside target would be a very impressive gain indeed. Is it just time for small caps to finally catch up to the S&P 500?
The Dow Transportation Index had a good day making it look like the 50-day EMA test was a big success.
The EFA (I-fund) was up but still consolidating, which could be a precursor to a breakout.
The longer-term chart chart however, shows some overhead resistance.
Some recessionary concerns remain seeing the price of copper not acting too great with that bear flag forming. Below that we see that oil, while trending up, is still below the 200-day EMA and in a possible large bear flag.
Then there's the yield on the 10-year Treasury which was surprisingly down yesterday with stocks rallying. Yields tend to go down when economic data is weakening, and we have seen this break below its rising channel and 50-day EMA recently, creating a small bear flag in the process.
The AGG (bonds F-fund) was up with those yields falling and again, that's a little surprising with the strength in stocks yesterday. It was "risk on" for stocks, but a little safety play in the background in bonds.
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 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.
