Stocks gapped up on Turnaround Tuesday and the bulls finally had their way as the bears stepped aside for a day. The Dow gained 196-points and the talk is that Paul Ryan's comments on tax cuts helped bring the bulls back to the table after taking a couple of weeks off.
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The market was due for a pullback / correction, which we hadn't had for a while, so we have to ask if the recent relatively minor pullback, as corrections go, was it? Are we done on the downside?
The pieces of the puzzle for a market rally seem to be in place: Interest rates are still low and the Fed doesn't seem to be in a rush to go further at this time. Earnings season was pretty strong. The economic data has been fairly good, and we talked about the price of copper yesterday which sort of confirms that. Now the tax cut talk is starting again and that seemed to be enough to get investors back in the buying camp. Also, the Senate Majority Leader says there is zero chance that the debt ceiling will not be raised, meaning no government shutdown, which has been on investors' minds.
Playing devils advocate here, we could look at yesterday's rally and say it was on very light volume being the latter half of the Wall Street summer vacation month, and we know that markets don't go straight down and perhaps yesterday was nothing but a relief rally?
It probably won't take a but a couple of days to know. I posted this chart on Monday showing that the S&P was hitting it long-term support line, and that we should be seeing a gap open if the patterns from the last two years continued.
Click image to see full size
We got that gap up yesterday. In the prior instances, the markets just kept going up after those gaps, so if this rally fails in the coming days, we may know we're up against something different this time.
The SPY (S&P 500 / C-fund) shot up on fairly light volume, even lighter than Monday's. It's still in a short-term descending trading channel but the two recent similar channels both broke to the upside with some authority. It is also back above its 50-day EMA, after closing below it for 3 days. Another gap opened yesterday but as we saw in the long-term chart of the SPY up above, none of those gaps have been filled after bouncing off of the rising long-term support line.
The DWCPF (small caps / S-fund) gained 1% on the day and also remains in its downtrend so it has some work to do after peaking and falling for the last 4 - 5 weeks.
The Dow Transportation Index posted a solid gain and while the chart formation is a little funky, it did hold at the 200-day EMA the whole time.
The EFA (EAFE Index / I-fund) rallied after several tests at the 50-day EMA. It was held back by a relief rally in the dollar. That support holding appears promising, but we may have to look out for a bear flag that seems to be forming. If it can get above 67 it looks good. Any break down below the 50-day EMA would be a bear flag breakdown and obviously would be a big negative.
This 2-day chart of the dollar shows why the I-fund lagged yesterday. The dollar gained 0.41% on the day, but it remains in a bear flag (not shown here).
The AGG (Bonds / F-fund) was down as stocks rallied and risk was on for investors and traders yesterday. There is a possible rising wedge negative tone here, but we know if stocks start to wobble again, investors will come back here.
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.
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The pieces of the puzzle for a market rally seem to be in place: Interest rates are still low and the Fed doesn't seem to be in a rush to go further at this time. Earnings season was pretty strong. The economic data has been fairly good, and we talked about the price of copper yesterday which sort of confirms that. Now the tax cut talk is starting again and that seemed to be enough to get investors back in the buying camp. Also, the Senate Majority Leader says there is zero chance that the debt ceiling will not be raised, meaning no government shutdown, which has been on investors' minds.
Playing devils advocate here, we could look at yesterday's rally and say it was on very light volume being the latter half of the Wall Street summer vacation month, and we know that markets don't go straight down and perhaps yesterday was nothing but a relief rally?
It probably won't take a but a couple of days to know. I posted this chart on Monday showing that the S&P was hitting it long-term support line, and that we should be seeing a gap open if the patterns from the last two years continued.
Click image to see full size
We got that gap up yesterday. In the prior instances, the markets just kept going up after those gaps, so if this rally fails in the coming days, we may know we're up against something different this time.
The SPY (S&P 500 / C-fund) shot up on fairly light volume, even lighter than Monday's. It's still in a short-term descending trading channel but the two recent similar channels both broke to the upside with some authority. It is also back above its 50-day EMA, after closing below it for 3 days. Another gap opened yesterday but as we saw in the long-term chart of the SPY up above, none of those gaps have been filled after bouncing off of the rising long-term support line.
The DWCPF (small caps / S-fund) gained 1% on the day and also remains in its downtrend so it has some work to do after peaking and falling for the last 4 - 5 weeks.
The Dow Transportation Index posted a solid gain and while the chart formation is a little funky, it did hold at the 200-day EMA the whole time.
The EFA (EAFE Index / I-fund) rallied after several tests at the 50-day EMA. It was held back by a relief rally in the dollar. That support holding appears promising, but we may have to look out for a bear flag that seems to be forming. If it can get above 67 it looks good. Any break down below the 50-day EMA would be a bear flag breakdown and obviously would be a big negative.
This 2-day chart of the dollar shows why the I-fund lagged yesterday. The dollar gained 0.41% on the day, but it remains in a bear flag (not shown here).
The AGG (Bonds / F-fund) was down as stocks rallied and risk was on for investors and traders yesterday. There is a possible rising wedge negative tone here, but we know if stocks start to wobble again, investors will come back here.
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.
