Delta variant? Monkeypox? That was so last week. Stocks ran up for a second straight day with gains across the board again (no rotation.) The Dow gained another 286-points on Wednesday on top of Tuesday's 550 point gain. Not a bad two days, but of course that was on the heals of a 726-point loss on Monday. Small caps and the I-fund led on the upside. Oil was up $3 a barrel. Yields rallied again, and the dollar declined so it was a complete reversal of recent action.
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The action was certainly bullish and sentiment is shifting from where it was a few days ago. But a snap back rally, barring another COVID-type crash, was inevitable, but it's what happens next that matters. The fact that we got a positive reversal day on Monday, and then two big rallies that both closed near the highs, is a bullish development to be sure. But now comes the test.
The internal advance / decline volume numbers were very bullish. Not quite the 9 to 1 ratio that we saw on Tuesday, and we'd like to see another 9 to 1 ratio in the coming days to help confirm a low, but the approximately 5 to 1 ratio on the NYSE was strong yesterday.
So, what changed? For one thing yields stopped falling, but we knew they couldn't go down every day. Was the last two up days a temporary corrective move from the recent downtrend, and will that the prior action resume again at some point? The overhead open gap was filled.
Another change was that the dollar stopped rising. That helped stocks and prices in general for sure. But again, the dollar wasn't going to go up every day. It's still in a rising channel, although getting a little "wedgy."
And let's address the issue I posted regarding the small caps, in this case the Russell 2000 chart. This long trading range that has lasted the entire year, tested the lower end on Monday and since then we have had a big snap back rally. Again, that's typical, but what happens next is the more important move. We've seen other snap back rallies really make a move and race toward the top of the range a few times this year. But other times the snap back rally got sold and it came right back down toward the lows again.
The purple line is the 50-day EMA and that could come into play today and would be a good test to see how much momentum this upside move has. A couple of rallies failed at the average, and a few shot right through it. I'm not sure where this rally is as far as if has the strength to keep going, but a couple of closes above the 50-day EMA could help sort that out.
The S&P 500 (C-fund) rallied another 0.82% yesterday and that puts it 130-points off its Monday low. This chart has held up better than the small cap and I-funds and is it basically coming back from just a 3-day decline since it had just made a new intraday high on Wednesday of last week. Fast forward a couple more days and it is now just a little more than 1% off its all time highs already. It's tough to argue with the chart, but all of the fears and concerns that we talked about during the decline have not gone away, although perhaps the pullback was considered healthy after a huge bounce off the late June lows.
The DWCPF (S-fund) saw a 7.66% pullback from its highs - not quite as bad as the Russell 2000 small cap index, but significant, and since Monday's low it has gotten about half of that back. It closed above the 50-day EMA, something we thought could be a problem, but not this time. That resistance line near 2250 is still in play and probably the most significant technical concern right now, and to a lesser extent the blue descending resistance line off the highs.
The EFA / I-fund finally got a break from the dollar's recent strength as we talked about above. Yesterday's rally filled one large open gap (blue) but opened a small one in the process near 77.60 (red). There's also a large open gap up by 79.50 but it will have to get back above its 50-day EMA to fill it. That may not be as easy here as the S-fund as this one is in a clear down trend, and the top of that gap is also above the descending channel.
The Dow Transportation Index rallied early, then flipped over and fell back below the 100-day average, which got my attention as a possible red flag, but later in the day it managed to close back above that 100-day average again. It's still below the 50-day EMA but trying to break that descending trading channel's resistance line.
The BND (bonds / F-fund) was down sharply for a second straight day as everything seems to have flipped. As I mentioned yesterday, the reversal on Tuesday does look toppy, but the top of that trading channel may still want to hold as support.
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
To get weekly or daily notifications when we post new commentary, sign up HERE.
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 action was certainly bullish and sentiment is shifting from where it was a few days ago. But a snap back rally, barring another COVID-type crash, was inevitable, but it's what happens next that matters. The fact that we got a positive reversal day on Monday, and then two big rallies that both closed near the highs, is a bullish development to be sure. But now comes the test.
The internal advance / decline volume numbers were very bullish. Not quite the 9 to 1 ratio that we saw on Tuesday, and we'd like to see another 9 to 1 ratio in the coming days to help confirm a low, but the approximately 5 to 1 ratio on the NYSE was strong yesterday.
So, what changed? For one thing yields stopped falling, but we knew they couldn't go down every day. Was the last two up days a temporary corrective move from the recent downtrend, and will that the prior action resume again at some point? The overhead open gap was filled.
Another change was that the dollar stopped rising. That helped stocks and prices in general for sure. But again, the dollar wasn't going to go up every day. It's still in a rising channel, although getting a little "wedgy."
And let's address the issue I posted regarding the small caps, in this case the Russell 2000 chart. This long trading range that has lasted the entire year, tested the lower end on Monday and since then we have had a big snap back rally. Again, that's typical, but what happens next is the more important move. We've seen other snap back rallies really make a move and race toward the top of the range a few times this year. But other times the snap back rally got sold and it came right back down toward the lows again.
The purple line is the 50-day EMA and that could come into play today and would be a good test to see how much momentum this upside move has. A couple of rallies failed at the average, and a few shot right through it. I'm not sure where this rally is as far as if has the strength to keep going, but a couple of closes above the 50-day EMA could help sort that out.
The S&P 500 (C-fund) rallied another 0.82% yesterday and that puts it 130-points off its Monday low. This chart has held up better than the small cap and I-funds and is it basically coming back from just a 3-day decline since it had just made a new intraday high on Wednesday of last week. Fast forward a couple more days and it is now just a little more than 1% off its all time highs already. It's tough to argue with the chart, but all of the fears and concerns that we talked about during the decline have not gone away, although perhaps the pullback was considered healthy after a huge bounce off the late June lows.
The DWCPF (S-fund) saw a 7.66% pullback from its highs - not quite as bad as the Russell 2000 small cap index, but significant, and since Monday's low it has gotten about half of that back. It closed above the 50-day EMA, something we thought could be a problem, but not this time. That resistance line near 2250 is still in play and probably the most significant technical concern right now, and to a lesser extent the blue descending resistance line off the highs.
The EFA / I-fund finally got a break from the dollar's recent strength as we talked about above. Yesterday's rally filled one large open gap (blue) but opened a small one in the process near 77.60 (red). There's also a large open gap up by 79.50 but it will have to get back above its 50-day EMA to fill it. That may not be as easy here as the S-fund as this one is in a clear down trend, and the top of that gap is also above the descending channel.
The Dow Transportation Index rallied early, then flipped over and fell back below the 100-day average, which got my attention as a possible red flag, but later in the day it managed to close back above that 100-day average again. It's still below the 50-day EMA but trying to break that descending trading channel's resistance line.
The BND (bonds / F-fund) was down sharply for a second straight day as everything seems to have flipped. As I mentioned yesterday, the reversal on Tuesday does look toppy, but the top of that trading channel may still want to hold as support.
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
To get weekly or daily notifications when we post new commentary, sign up HERE.
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.
