Stocks rallied early and closed with strong gains, but the trend of getting a grind lower in the afternoon trading and into the close, continued. The Dow gained 189-points, but those recently beaten down growth stocks made another come back as the Nasdaq and the small caps led again with huge gains yesterday.
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During the pullback in February and into March we talked about bonds and the price of gold acting poorly suggesting that investors were not running for safety, which led us to believe that things were still good and that it was just a typical pullback that could be bought. Fast forward a week and the indices are at, or approaching new highs, depending on the index. Even after this bounce back, those safety trades are still in trouble as both have weak looking charts. Good sign.
Given the economic growth, the 0% interest rates, the release of the COVID vaccines, the bloated stimulus spending bill, etc., and we have a market that is now being well fed -- and well Fed. You see what I did there?
So what can go wrong? I suppose bond yields, which ticked up slightly yesterday, could reverse back up indicating an overheated economy where the Fed might have to step in and tighten, but they seem very reluctant to do that.
At this point it may just be a matter of, who is left to buy? We are seeing a lot of bullishness in many of the investor sentiment-type indicators suggesting that anyone who had been planning to buy, may have already done so. Sure, we could see another big inflow when those stimulus checks are sent out to people who don't really need them to pay bills, so maybe the rally has more to go, but don't forget that stocks don't usually top when things look bad. They top when everyone has already priced in the good stuff.
The Nasdaq had a 10% correction and if that index is heading to new highs (it's 800 points away) then there may be money moved into it with the S&P 500, Dow, Russell 2000, and the Transports all already at new highs. That is unless there really is a big rotation out of growth and this recent rally is just an oversold bounce those big tech stocks. We'll know if yields do start us again and the Nasdaq flips back over before making a new high. The tendency for decades, according to sentimenTrader.com, is that when the Nasdaq lags like this has been, the Nasdaq catches up, rather than the other indices getting pulled lower.
Bottom line: The market has a pretty good breeze at its back helping pushing it along the bullish road. But don't get too complacent because if there is a rock in the road we could see things tumble over again, and we saw recently how quickly things can go south when that happens. I can feel myself getting more bullish, but I know better than to trust that. Markets tend to climb a wall of worry, and peak at euphoria. Can you feel that euphoria creeping in?
The S&P 500 (C-fund) poked into new high territory on Thursday, but for the fourth day in a row, it closed well off the highs, although yesterday was a new closing high (blue line.) I'm not sure what to make of those negative reversals candlesticks, but with that PMO indicator getting close to crossing above the moving average, it could mean an overbought dip may be due. Momentum, however, may say otherwise.
The DWCPF (small caps / S-fund) is having a good time with these giant gains this week, and this one is still well off its highs so it may have some room to run yet. If it does flip back over for some reason before making new highs, that would obviously be a red flag and a possible lower high, but for now, it's flying. And unlike the S&P 500, this one closed right near its highs of the day yesterday.
The EFA (I-fund) was up moderately and the dollar has been pulling back pretty sharply since that March 8th high. It's a good looking chart right now.
The Dow Transportation Index made another all-time and closing high yesterday, but this recent leg up has come a long way, and it is running into some long-term overhead resistance.
The intermediate-term indicators finally moved back above its 50-day EMA but it closed well off its highs. It may be in a new downtrend but this is quite oversold from an historical perspective and "should" bounce back, but if it doesn't I don't know how much love I will be willing to give the stock funds.
BND (bonds / F-fund) was flat as yields reversed up after a morning pullback. The descending resistance line was broken this week, but the larger trend is also down. Again, this (F-fund) may be due for a bounce, but why take the chance in this environment?
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
For more info our other premium services, please go here... www.tsptalk.com/premiums.html
Thanks for reading. Have great weekend!
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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During the pullback in February and into March we talked about bonds and the price of gold acting poorly suggesting that investors were not running for safety, which led us to believe that things were still good and that it was just a typical pullback that could be bought. Fast forward a week and the indices are at, or approaching new highs, depending on the index. Even after this bounce back, those safety trades are still in trouble as both have weak looking charts. Good sign.
Given the economic growth, the 0% interest rates, the release of the COVID vaccines, the bloated stimulus spending bill, etc., and we have a market that is now being well fed -- and well Fed. You see what I did there?
So what can go wrong? I suppose bond yields, which ticked up slightly yesterday, could reverse back up indicating an overheated economy where the Fed might have to step in and tighten, but they seem very reluctant to do that.
At this point it may just be a matter of, who is left to buy? We are seeing a lot of bullishness in many of the investor sentiment-type indicators suggesting that anyone who had been planning to buy, may have already done so. Sure, we could see another big inflow when those stimulus checks are sent out to people who don't really need them to pay bills, so maybe the rally has more to go, but don't forget that stocks don't usually top when things look bad. They top when everyone has already priced in the good stuff.
The Nasdaq had a 10% correction and if that index is heading to new highs (it's 800 points away) then there may be money moved into it with the S&P 500, Dow, Russell 2000, and the Transports all already at new highs. That is unless there really is a big rotation out of growth and this recent rally is just an oversold bounce those big tech stocks. We'll know if yields do start us again and the Nasdaq flips back over before making a new high. The tendency for decades, according to sentimenTrader.com, is that when the Nasdaq lags like this has been, the Nasdaq catches up, rather than the other indices getting pulled lower.
Bottom line: The market has a pretty good breeze at its back helping pushing it along the bullish road. But don't get too complacent because if there is a rock in the road we could see things tumble over again, and we saw recently how quickly things can go south when that happens. I can feel myself getting more bullish, but I know better than to trust that. Markets tend to climb a wall of worry, and peak at euphoria. Can you feel that euphoria creeping in?
The S&P 500 (C-fund) poked into new high territory on Thursday, but for the fourth day in a row, it closed well off the highs, although yesterday was a new closing high (blue line.) I'm not sure what to make of those negative reversals candlesticks, but with that PMO indicator getting close to crossing above the moving average, it could mean an overbought dip may be due. Momentum, however, may say otherwise.
The DWCPF (small caps / S-fund) is having a good time with these giant gains this week, and this one is still well off its highs so it may have some room to run yet. If it does flip back over for some reason before making new highs, that would obviously be a red flag and a possible lower high, but for now, it's flying. And unlike the S&P 500, this one closed right near its highs of the day yesterday.
The EFA (I-fund) was up moderately and the dollar has been pulling back pretty sharply since that March 8th high. It's a good looking chart right now.
The Dow Transportation Index made another all-time and closing high yesterday, but this recent leg up has come a long way, and it is running into some long-term overhead resistance.
The intermediate-term indicators finally moved back above its 50-day EMA but it closed well off its highs. It may be in a new downtrend but this is quite oversold from an historical perspective and "should" bounce back, but if it doesn't I don't know how much love I will be willing to give the stock funds.
BND (bonds / F-fund) was flat as yields reversed up after a morning pullback. The descending resistance line was broken this week, but the larger trend is also down. Again, this (F-fund) may be due for a bounce, but why take the chance in this environment?
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
For more info our other premium services, please go here... www.tsptalk.com/premiums.html
Thanks for reading. Have great weekend!
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.
