Stocks rallied on Friday after the possible successful test of the January low on Thursday. The Dow jumped 314-points although volume was light. Ironically, or actual typical market trickery, many expected a down day going into the long holiday weekend, and the market had them leaning the wrong way. The question was going to be, what happens after the holiday?
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The futures market did open on Sunday night with an abbreviated session on Monday, and the buying continued as the Dow futures close up another 211-points, while the S&P 500 futures added 27 (or 1.45%), and the Nasdaq was up 70.
The futures have just opened again on Monday evening as I write this, and so far those gains have held.
The SPY (S&P 500 Index / C-Fund) is trying to form a double bottom but we can see the next area of overhead resistance is not very far away - in line with the 20-day EMA. Volume was light during Friday's pre-holiday rally, but heavier during the Thursday reversal day. That could just mean investors weren't confident enough to buy, which is actually a good sign from a contrarian perspective.
The PMO indicator may be the positive indicator the market is looking for. I have often mentioned that the first crossover of the PMO indicator above its moving average can trigger an overbought pullback, but the second crossover can be the real buy signal. It hasn't move back above yet, but the PMO looks like it will do so some time this week, barring any major sell-off.
The weekly chart shows a possible reversal which can lead to more upside in the following week or weeks. That didn't work in August of last year, but it did in October. There was some brief relief following the January weekly reversal, so will the second reversal work like the 2nd one in October, which was a double bottom? - For while anyway.
The Dow Completion Index (small caps / S-Fund) broke down from a bear flag and now faces some stiff overhead resistance near 880. A rally up to that point would fill the open gap, and that's where it will really be tested.
The Dow Transportation Index has held up well as far as not testing the January lows, but that's a big bear flag forming and they tend to break down so it's difficult to get too bullish here despite the recent bullish action. The top of the flag meets with the 50-day EMA near 7200. That's a very important level.
Oil had a big day on Friday, and a big rally off of Thursday's low. This info is from sentimentrader.com:
"Crude oil jumped 10% from what had been a yearly low. Again. As noted in prior reports, this kind of behavior has preceded major long-term rallies in the past 30 years (1986, 1990, 1998 and 2008). It has now happened twice in a month. It doesn't say a lot about the short to medium term, but over six months to a year, returns have been abnormally large." Source: www.sentimentrader.com
The Volatility Index pulled back to 25 on Friday but found support there. If the positive futures hold into Tuesday's open we should see that support break down.
The 10-year yield rebounded late last week pushing bonds prices back down into the rising trading channel it had broken above briefly on Thursday.
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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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