Bargain hunters showed up and stocks mounted a comeback yesterday as the Dow gained 79-points, which was about half of Monday and Tuesday's 162-point loss. Small caps lagged again and the Russell 2000 added just 2 of the 26-points it lost over the prior two days.
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The dollar fell and U.S. stocks rallied, but since most of that action came later in the afternoon, the I-fund didn't have a chance to react yet so the I-fund will be due some payback today.
Much of the upside action and the late day moves were triggered by the Fed saying that the QE tapering will conclude in October, meaning no more economic stimulus. I'm a little surprised by the bullish reaction in stocks, but the midday spike in bond prices made sense.
Some of the index charts, particularly the small caps, are showing signs of a potential bear flag with yesterday's modest rebound following the Monday and Tuesday sell-off, but the SPY (S&P 500 / C-fund) is looking more like another "V" bottom that we've become accustomed to over the last several months. The PMO is giving yet another sell signal as it moved below its 10-day moving average, but it has been a little flakey lately.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
The Russell 2000 had a small 0.14% gain yesterday, which isn't too impressive considering the sharp decline over the prior two days. The rising support line has broken and the first attempt to recapture the 20-day EMA was unsuccessful. The Russell is more volatile than the S&P 500 so the chart isn't always as clean, but still - this negative divergence from a leader is a bit of a concern.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
The Wilshire 4500 (S-fund) did better than the Russell, but a little worse than the S&P 500. The chart also broke down from a sharply ascending support line and is now trying to recapture the 20-day EMA.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
The German DAX also broke down this week and yesterday posted a small gain, more similar in proportion to our small cap charts than the more bullish S&P 500 chart. It is below the 50-day EMA, and like the French CAC that we talked about yesterday, it is showing some cracks in its bull market.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
That wouldn't be good for our I-fund, which was down yesterday, but this EFA ETF shows what might have been if the overseas markets stayed open until U.S. stocks closed. It's not a bad looking chart although it is flirting with support now. That 50-day EMA will be an important area to hold.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
Today is the 7th trading day in July, and whether it is because of earnings season kicking off or something else, there is a patch of historically strong seasonality over the next three days.
Chart provided courtesy of www.sentimentrader.com, analysis by TSP Talk
Bonds rallied strongly after the Fed announced the end of their stimulus program and the bond market interpreted that as less inflationary, which means interest rates may not rise too quickly, and therefore bond prices would hold up.
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
Posted daily at TSP Talk Market Commentary
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