Stocks continued their relentless march higher on Tuesday with another modest gain, although the indices were mixed with the Nasdaq falling on some tech earnings. Once again the buying began at the opening bell but yesterday the bears made a move pulling the indices into negative territory just afternoon ET. The dip buyers were not far away and jumped in to push the Dow and S&P back into the black. The Dow gained 49-points, which was about 50-points off the highs.
[TABLE="width: 89%, align: center"]
[TR]
[TD="width: 180, align: center"]
[/TD]
[TD][/TD]
[TD="align: center"] Daily TSP Funds Return
[TABLE="width: 69%, align: center"]
[TR]
[TD="align: right"] [/TD]
[/TR]
[/TABLE]
[/TD]
[/TR]
[/TABLE]
It's getting difficult to find reasons to not like this market except that it is overbought and may need a pause. The dip buyers are around every corner making it difficult for anyone waiting to buy a pullback. How patient can they be? Well, we're nearing some old highs in the S&P 500 and that may provide some opportunities since double tops tend to get sold. The trouble is that support is getting thin if there is any kind of selling, and that could make pullbacks on the steep side.
The SPY (S&P 500 / C-Fund) hit the December high yesterday and that was the day's high. The November high is still about 1% above Tuesday's closing price. There's a lot of resistance here so anyone holding out for that 1% may be taking on a little too much risk vs.reward since a double top pullback is very possible. If you think this market is just going straight to new highs, it could be explosive because many will wait for the new high before buying. That's what causes double tops, the waiting for the next person to buy, but once a new high is made they will run the stops and we could see a big breakout. So that's the scenario and I know it's not much help. We "should" pullback here, but if we don't, the breakout rally could be big.
The Dow Transportation Index had a big day and made a new high for 2016 before pulling back a bit.
The EFA (EAFE Index / I-fund) gapped up again touching the high made just after Christmas. That's 3 large open gaps on the chart and I just can't see all of those staying open for too long, even though two of them are back below the 200-day EMA.
The economic situation overseas does not seem very strong on the surface so what is propelling their stock markets? For one thing, like our bond market, yields are so low that investors may be willing to take the risk in stocks for more potential return.
The 10-Year Treasury is paying just 1.78%. That's not a lot to be excited about so the stocks market seems like a good alternative, although people are still buying bonds for some reason.
Now compare that rate to what we're seeing overseas, in this case Germany and Japan, which is 0.16% and -0.12% respectively.
Yes, that is a negative return in Japan so would you rather get a negative return in a bond, or take a risk in stocks? And that may be why stocks markets are not rolling over.
The AGG (Bonds / F-fund) was flat yesterday but it came back from some morning losses. It is still looking at the 111 area for a breakout, but if it doesn't breakout soon the bond investors could get antsy and take profits.
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
Thanks for reading. We'll see you 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.
[TABLE="width: 89%, align: center"]
[TR]
[TD="width: 180, align: center"]
[TD][/TD]
[TD="align: center"] Daily TSP Funds Return
[TR]
[TD="align: right"] [/TD]
[/TR]
[/TABLE]
[/TD]
[/TR]
[/TABLE]
Oil rallied again yesterday and the WTIC index moved back above the 200-day EMA. Oil seems to have decoupled from stocks somewhat but when oil is up big, it does help the energy sector which benefits the Dow and S&P. However one of the major catalysts yesterday was a rally in the financial sector which is coming alive as well.It's getting difficult to find reasons to not like this market except that it is overbought and may need a pause. The dip buyers are around every corner making it difficult for anyone waiting to buy a pullback. How patient can they be? Well, we're nearing some old highs in the S&P 500 and that may provide some opportunities since double tops tend to get sold. The trouble is that support is getting thin if there is any kind of selling, and that could make pullbacks on the steep side.
The SPY (S&P 500 / C-Fund) hit the December high yesterday and that was the day's high. The November high is still about 1% above Tuesday's closing price. There's a lot of resistance here so anyone holding out for that 1% may be taking on a little too much risk vs.reward since a double top pullback is very possible. If you think this market is just going straight to new highs, it could be explosive because many will wait for the new high before buying. That's what causes double tops, the waiting for the next person to buy, but once a new high is made they will run the stops and we could see a big breakout. So that's the scenario and I know it's not much help. We "should" pullback here, but if we don't, the breakout rally could be big.
The Dow Transportation Index had a big day and made a new high for 2016 before pulling back a bit.
The EFA (EAFE Index / I-fund) gapped up again touching the high made just after Christmas. That's 3 large open gaps on the chart and I just can't see all of those staying open for too long, even though two of them are back below the 200-day EMA.
The economic situation overseas does not seem very strong on the surface so what is propelling their stock markets? For one thing, like our bond market, yields are so low that investors may be willing to take the risk in stocks for more potential return.
The 10-Year Treasury is paying just 1.78%. That's not a lot to be excited about so the stocks market seems like a good alternative, although people are still buying bonds for some reason.
Now compare that rate to what we're seeing overseas, in this case Germany and Japan, which is 0.16% and -0.12% respectively.
Yes, that is a negative return in Japan so would you rather get a negative return in a bond, or take a risk in stocks? And that may be why stocks markets are not rolling over.
The AGG (Bonds / F-fund) was flat yesterday but it came back from some morning losses. It is still looking at the 111 area for a breakout, but if it doesn't breakout soon the bond investors could get antsy and take profits.
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
Thanks for reading. We'll see you 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.
