We got some follow through buying on Tuesday as the indices were able to get above some tough resistance levels, but there is more. It's been a nice run off the lows with the Dow adding another 135-points, and the broader indices performed even better percentage-wise. Small caps beat the large caps and the EFA, or I-fund, made up some ground after Monday's under performance.
The chart below left was Tuesday's action in the major indices, and below right is the share returns from both Monday and Tuesday combined because of the TSP holiday on Monday.
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[TD="width: 338, align: center"] Daily TSP Funds Return
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We saw stocks open up modestly higher but they immediately gained some steam and moved up to the highs of the day just after noon ET. That's when a disappointing bond auction took place and you can see that the yield on the 10-year Treasury was rebounding off of the day's lows, causing some selling in stocks.
The S&P 500 (C-fund) had a nice gain but it closed off the highs after hitting the 50-day EMA, and right about the same time the bond auction was completed. Funny how things work together. The S&P did push above that first level of resistance by jumping above the 20-day EMA and the old red neckline, but that 50-day EMA got in the way before it had a chance to fill that open gap near 4400.
The action looks good but today's PPI report and tomorrow's CPI report could have been part of the reason why we saw some profit taking late yesterday, and it will be interesting to see how aggressive the bulls are today in front of that CPI report tomorrow.
The weekly chart shows that the recent pullback found support right at the 50-week moving average (purple) and now it is dealing with the 20-week EMA in green. This is a very solid looking chart and any digesting of the recent gains would look worse on the chart above, than on this one below. The key is to stay above the recent lows, and that would likely ignite some good action into the end of the year. That doesn't have to happen, but that's the way it is shaping up as of now. The CPI report tomorrow could change everything, or keep the rally going as many people remain under invested and could buy any modest dip quickly.
The small caps chart of the Russell 2000 Index doesn't look quite as good as there is a ton of overhead resistance and it is still in a downtrend, but it is very possible that the double bottom below 170 could be the lows of the correction.
DWCPF (S-fund, small caps) looks a little better than the Russell chart above, but it has issues and yesterday's high is right around a confluence of tough resistance that may take a very favorable PPI and CPI report to get above. Then there's more resistance above that.
Back to the three amigos -- yields, the dollar and oil. All were down yesterday helping the stock market rally. The 10-year yield gapped down because the bond market was closed on Monday but technically it is still trending higher. 4.4% could be a downside target. The dollar (UUP) may have broken blow its trading channel. It may depend of how thick your crayon is while drawing that support line.
The price of oil jumped on Monday after the Middle East violence, but that rally stalled yesterday so it may have been a knee-jerk reaction. It seemed like a reasonable reaction, but it may take a few days to understand how serious the conflict will be and its impact on the supply of oil in that region.
Again, the PPI and CPI this week could make or break this relief rally, which looks good, but as we saw, there is still a ton of overhead resistance from the deterioration of the charts after the correction /pullback, depending on which chart we look at.
The EFA (I-fund) had a big day but as I mentioned yesterday, the low return on Monday in the EFA was the reason as the overseas markets played catch up yesterday. You can see the resistance and the open gap down by 68.50 so there is a catalyst for a dip. It's just a matter of how quickly the dip buyers show up since investors seem very underinvested if this is an actually market low being formed. The chart may not confirm that yet, but it looks better than it did a week ago.
BND (bonds / F-fund) was down slightly yesterday after Monday's big gain so the F-fund is up quite a bit off the lows and since Friday's close. The top of that open gap near 69.50 has been a stubborn area and the PPI and CPI reports over the next couple of days will obviously dictate which way yields and bond prices go. It's tough to even try to guess, although a move up to the 69.75 area seems doable.
Thanks so much for reading! We'll see you back here tomorrow.
Tom Crowley
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
Daily Market Commentary Archives
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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.
The chart below left was Tuesday's action in the major indices, and below right is the share returns from both Monday and Tuesday combined because of the TSP holiday on Monday.
[TABLE="align: center"]
[TR]
[TD="align: center"]
[TD]
[/TD]
[TD="width: 338, align: center"] Daily TSP Funds Return
[TR]
[TD="align: right"][/TD]
[/TR]
[/TABLE]
[/TD]
[/TR]
[/TABLE]
We saw stocks open up modestly higher but they immediately gained some steam and moved up to the highs of the day just after noon ET. That's when a disappointing bond auction took place and you can see that the yield on the 10-year Treasury was rebounding off of the day's lows, causing some selling in stocks.
The S&P 500 (C-fund) had a nice gain but it closed off the highs after hitting the 50-day EMA, and right about the same time the bond auction was completed. Funny how things work together. The S&P did push above that first level of resistance by jumping above the 20-day EMA and the old red neckline, but that 50-day EMA got in the way before it had a chance to fill that open gap near 4400.
The action looks good but today's PPI report and tomorrow's CPI report could have been part of the reason why we saw some profit taking late yesterday, and it will be interesting to see how aggressive the bulls are today in front of that CPI report tomorrow.
The weekly chart shows that the recent pullback found support right at the 50-week moving average (purple) and now it is dealing with the 20-week EMA in green. This is a very solid looking chart and any digesting of the recent gains would look worse on the chart above, than on this one below. The key is to stay above the recent lows, and that would likely ignite some good action into the end of the year. That doesn't have to happen, but that's the way it is shaping up as of now. The CPI report tomorrow could change everything, or keep the rally going as many people remain under invested and could buy any modest dip quickly.
The small caps chart of the Russell 2000 Index doesn't look quite as good as there is a ton of overhead resistance and it is still in a downtrend, but it is very possible that the double bottom below 170 could be the lows of the correction.
DWCPF (S-fund, small caps) looks a little better than the Russell chart above, but it has issues and yesterday's high is right around a confluence of tough resistance that may take a very favorable PPI and CPI report to get above. Then there's more resistance above that.
Back to the three amigos -- yields, the dollar and oil. All were down yesterday helping the stock market rally. The 10-year yield gapped down because the bond market was closed on Monday but technically it is still trending higher. 4.4% could be a downside target. The dollar (UUP) may have broken blow its trading channel. It may depend of how thick your crayon is while drawing that support line.
The price of oil jumped on Monday after the Middle East violence, but that rally stalled yesterday so it may have been a knee-jerk reaction. It seemed like a reasonable reaction, but it may take a few days to understand how serious the conflict will be and its impact on the supply of oil in that region.
Again, the PPI and CPI this week could make or break this relief rally, which looks good, but as we saw, there is still a ton of overhead resistance from the deterioration of the charts after the correction /pullback, depending on which chart we look at.
The EFA (I-fund) had a big day but as I mentioned yesterday, the low return on Monday in the EFA was the reason as the overseas markets played catch up yesterday. You can see the resistance and the open gap down by 68.50 so there is a catalyst for a dip. It's just a matter of how quickly the dip buyers show up since investors seem very underinvested if this is an actually market low being formed. The chart may not confirm that yet, but it looks better than it did a week ago.
BND (bonds / F-fund) was down slightly yesterday after Monday's big gain so the F-fund is up quite a bit off the lows and since Friday's close. The top of that open gap near 69.50 has been a stubborn area and the PPI and CPI reports over the next couple of days will obviously dictate which way yields and bond prices go. It's tough to even try to guess, although a move up to the 69.75 area seems doable.
Thanks so much for reading! We'll see you back here tomorrow.
Tom Crowley
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
Daily Market Commentary Archives
To get weekly or daily notifications when we post new commentary, sign up HERE.
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.
