Stocks opened higher and held onto those gains and closed near the highs of the day. The Dow gained 466-points, while the Nasdaq and small caps led on the upside with gains over 2%. Perhaps it was President Trump's health progress, or the fact that Wall Street is still cheerleading for an impending stimulus, although we'll discuss below another theory that is being talked about. Bonds were down as yields rallied and the dollar fell.
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I'm not as optimistic about a stimulus deal, but Wall Street is, and that's all that matters. After Friday's sell off we saw a big improvement in the internals which, as you may remember weren't that bad during Friday's sell off. Yesterday we saw about 5 to 1 advancing share volume over declining on the NYSE, and almost 4 to 1 on the Nasdaq, while the A/D issues were both closer to 3 to 1. The new highs was a knockout over the new lows.
The strength heading into the election is a little surprising as the indices push back toward the all-time highs again. I have have no doubt that the election is going to be contentious, and perhaps that is why the VIX, normally down on a day like Monday, was up over 1% and still sits at a lofty 28.0.
I don't like to talk politics here because it's a no win situation given how divided the country is, but when it could impact the market I don't think we can ignore it, and that's usually how I address the subject. I'm sure my biases show at times, but I do try to be practical in how it relates to the market.
Yesterday I heard a regular on Fast Money (CNBC) suggest that the rally yesterday was because investors were pricing in a potential democratic sweep in November. The reason they thought stocks rallied on that was because if there is a blue weep, stimulus spending could go unabated. But I would assume that Wall Street would not like the corporate tax increases and reimplementation of the deregulating that Trump has done.
So I'm not seeing yesterday's rally that way but I'm not on Wall Street hearing the squawk. What I do see is the potential for a chaotic outcome regardless of who wins - if a winner is chosen at all. Wall Street tends to like gridlock in DC because there are fewer potential changes being made, but they also like certainly, and I can't see it embracing a contested or undecided election. It may not tank, but it will be confused about where to put money.
As the month goes on we could get more or less clarity, and volatility and the VIX will likely stay elevated. That could mean some trouble for stocks, but it could also mean opportunities for market timers.
The S&P 500 (C-fund) closed yesterday at its highest level since before Labor Day weekend. The inverted head and shoulders pattern has been forming quite nicely, and they tend to be bullish, although there are exceptions in certain situations as we talked about yesterday. There is still a open gap down near 3307, but if the Trump health scare didn't push it there, it may take something even bigger to send it that far down again - perhaps the election?
The DWCPF (S-fund) gained 2.3% yesterday as it nears the early September high. That blue channel may have been a bull flag, and the breakout from it certainly made it act like one. It did open yet another gap yesterday, so that's two below and it's always a fair possibility that one or both will get filled at some point.
The Dow Transportation Index broke above one descending resistance line (blue), and that looks bullish, but there's a couple more levels it needs to get above before the green light can turn on. The head and shoulders pattern, as we talked about yesterday, could be a topping pattern or a continuation pattern. The smaller the pattern, the less likely it is a top, and this one isn't very big, but I think we need to see it make a new high before we can be sure. That seems like the more probably outcome.
The EFA (I-fund) filled the overhead gap yesterday, after filling the one below on Friday. That's volatility. Now it has opened another gap with Monday's action (red box.) It's back above the 50-day EMA, but below the broken rising channel, which could pose some resistance.
BND (F-fund) was down sharply yesterday and that was likely because of the increased chances of a stimulus package getting done. Stimulus is intended to stimulate the economy, and yields will tend to rise (bond prices fall) when the economy is improving.
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. 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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[TD][/TD]
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I'm not as optimistic about a stimulus deal, but Wall Street is, and that's all that matters. After Friday's sell off we saw a big improvement in the internals which, as you may remember weren't that bad during Friday's sell off. Yesterday we saw about 5 to 1 advancing share volume over declining on the NYSE, and almost 4 to 1 on the Nasdaq, while the A/D issues were both closer to 3 to 1. The new highs was a knockout over the new lows.
The strength heading into the election is a little surprising as the indices push back toward the all-time highs again. I have have no doubt that the election is going to be contentious, and perhaps that is why the VIX, normally down on a day like Monday, was up over 1% and still sits at a lofty 28.0.
I don't like to talk politics here because it's a no win situation given how divided the country is, but when it could impact the market I don't think we can ignore it, and that's usually how I address the subject. I'm sure my biases show at times, but I do try to be practical in how it relates to the market.
Yesterday I heard a regular on Fast Money (CNBC) suggest that the rally yesterday was because investors were pricing in a potential democratic sweep in November. The reason they thought stocks rallied on that was because if there is a blue weep, stimulus spending could go unabated. But I would assume that Wall Street would not like the corporate tax increases and reimplementation of the deregulating that Trump has done.
So I'm not seeing yesterday's rally that way but I'm not on Wall Street hearing the squawk. What I do see is the potential for a chaotic outcome regardless of who wins - if a winner is chosen at all. Wall Street tends to like gridlock in DC because there are fewer potential changes being made, but they also like certainly, and I can't see it embracing a contested or undecided election. It may not tank, but it will be confused about where to put money.
As the month goes on we could get more or less clarity, and volatility and the VIX will likely stay elevated. That could mean some trouble for stocks, but it could also mean opportunities for market timers.
The S&P 500 (C-fund) closed yesterday at its highest level since before Labor Day weekend. The inverted head and shoulders pattern has been forming quite nicely, and they tend to be bullish, although there are exceptions in certain situations as we talked about yesterday. There is still a open gap down near 3307, but if the Trump health scare didn't push it there, it may take something even bigger to send it that far down again - perhaps the election?
The DWCPF (S-fund) gained 2.3% yesterday as it nears the early September high. That blue channel may have been a bull flag, and the breakout from it certainly made it act like one. It did open yet another gap yesterday, so that's two below and it's always a fair possibility that one or both will get filled at some point.
The Dow Transportation Index broke above one descending resistance line (blue), and that looks bullish, but there's a couple more levels it needs to get above before the green light can turn on. The head and shoulders pattern, as we talked about yesterday, could be a topping pattern or a continuation pattern. The smaller the pattern, the less likely it is a top, and this one isn't very big, but I think we need to see it make a new high before we can be sure. That seems like the more probably outcome.
The EFA (I-fund) filled the overhead gap yesterday, after filling the one below on Friday. That's volatility. Now it has opened another gap with Monday's action (red box.) It's back above the 50-day EMA, but below the broken rising channel, which could pose some resistance.
BND (F-fund) was down sharply yesterday and that was likely because of the increased chances of a stimulus package getting done. Stimulus is intended to stimulate the economy, and yields will tend to rise (bond prices fall) when the economy is improving.
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. 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.
