Stocks opened lower on Tuesday, attempted a few midday rallies, but a late push lower sent the indices closer to the opening lows of the day. The Dow lost 48-points on the day and the losses were modest with the majors dipping 0.01% to 0.03%, but it was the way the day played out that was more concerning than the actual losses.
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Whether this is just nerves in front of this week's James Comey congressional testimony, or just the market exhaling after a strong two-day rally to end the week last week, I don't know. But it has been a mistake to get too bearish on stocks this year, and since the election. The question is whether the Comey testimony will change the sentiment that the Trump election gave the market.
The safety trades were working again as gold hit a new 2017 high while bonds were rallying and yields on the 10-year treasury were hitting new lows. The two (gold and bond prices) rising together is an odd combo since gold rising could be a sign of higher inflation, but rising bonds would not mean that at all. That's why I would call it a safety trade, except for one thing... the VIX is still near 10.0 telling us investors aren't too concerned about the stock market right now. It's an interesting combination.
The S&P 500 (C-fund) put in a negative reversal day and it came to rest near the lows of the day on top of the short-term rising support line. A break below that would likely test 242, then 241 where the 20-day EMA is currently. The action has been fairly orderly so far and we'll just have to wait and see if the Comey testimony, and next week's FOMC meeting, will change that.
The DWCPF (S-fund) pulled back modestly for a second straight day and tested some possible short term support at yesterday's lows. It looks like a double top pullback, which is normal, but the bulls will not want to see this fail again here after lagging recently.
The Dow Transportation Index pulled back and filled a small open gap near 9300. It had a great run up from the May lows but it is showing some fatigue after hitting the top of that big bear fag again.
The Financial stocks continue to look over a precipice with 23.00 as the drop dead support that needs to hold or this head and shoulders pattern would have a downside target of below 22.00 or so should it break down.
The EFA (EAFE Index / I-fund) is just off recent highs and remains in a nice orderly rising trading channel (red). The falling dollar has been a nice cushion this year for the I-fund. Watch that 66.0 area, which needs to hold or we could see a decent pullback toward the 50-day EMA.
The Volatility Index was up on yesterday's weakness in stocks, but it is still well below any signs of concerns from investors. The question is always whether investors are getting too complacent. We've seen signs that some investors are jumping into the safety plays, but that hasn't shown up here on the VIX yet.
The AGG (Bonds / F-fund) rallied to new 2017 highs as investors appear to be protecting themselves from overvaluation in stocks and a weakening economy, but so far we're not seeing many signs of that in the stock market.
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Thanks for reading. We'll see you back here tomorrow.
Tom Crowley
Posted daily at www.tsptalk.com/comments.php
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