It was day 3 of the post-Fed rally and the broader indices tacked on another 1% plus so there was no signs of this relief rally running out of steam, but trading volume is surprisingly light. It's not a deal breaker, but old school analysts used to look for a spike in volume to confirm a low, and we just haven't seen that yet during this rally that was partially triggered by weak employment data. Bonds were up slightly as yields dipped a bit.
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Other than a lack of trading volume, yesterday's rally did check a lot of boxes for the bulls. After getting through a very volatile, busy, and important week for stocks fairly unscathed, the relief rally turned into something more serious as we head into a window of calm before we get the next wave significant inflation data or market moving earnings. There's a week or so before we get the PPI and CPI reports, and then Nvidia reports on the 22nd - the final Magnificent 7 stock to report, and as the rally made it day #3 we saw some possible FOMO buying from the underinvested.
My summer of 2023 vs. the current 2024 chart theory has been losing its luster as this relief rally seems to be building strength rather than losing it, but there may be a something left to keep it alive for a few more days --
-- That rally in August of 2023 lasted for 11 trading days before rolling over again, and yesterday was day #11 for the current relief rally off the April lows. The August 2023 rally gained 4.9% before failing, while this current rally is now 4.7% off the low.
Maybe a few more up day will get me of this 2023 kick, but until then that door remains open.
The 10-year Treasury Yield spent most of the day slightly higher, but there was a late dip and that helped stocks rally into the close and close at the highs of the day. However, the support continues to hold in the 3.45% area. With limited economic data on the calendar until next week's PPI report, this chart is going to have to perform with few catalysts.
The dollar was up but unlike the 10-year yield which is being held up by support, the UUP chart is floundering below its old support, which may become resistance if it can't get back above about 28.75 in the next day or two. Remember the 3 to 5 day breakout / breakdown confirmation rule?
The Equal Weighted S&P 500 chart (same 500 stocks as the S&P 500 index but each stock is weighted equally), was up nicely yesterday but it is still clearly in its bear flag so this is something the bulls will need to work on to get the non Mag-7 stocks moving and confirming the rally.
Once again the Dow Transportation Index failed to make a move above the 200-day moving average. It has now tried three times. If the bears keep letting the bulls knock on the door, it will likely open eventually, but for now this is a technical roadblock for this market leader.
There will be a day this week where I will have to be on the road and out of commission after the TSP deadline, I'm just not sure which day as I am watching the weather. I will stick around the office until the TSP deadline just in case one of our premium services needs to send an IFT alert. I hoe it's not an inconvenience for anyone trying to contact me.
The S&P 500 (C-fund) made it day number three for the rally, and it tore through the top of the bear flag rather easily yesterday. There's still some issues here as I pointed out in the top section, and here you can see the trading volume drying up rather than exploding as you'd like to see when a bottom is forming. The pullback was only 6% so it's not like we're coming off a bear market low, but you do want to see some enthusiastic buying off the lows to confirm broad participation. The PMO just crossed above its moving average, which is a good sign, but it could be an indication of a short-term oversold condition.
DWCPF (S-fund) also broke above its bear flag, and that's interesting considering the RSP chart above of the Equal Weighted S&P 500 hasn't done that yet. So the largest tech stocks and heaviest weighted stocks in the US have broken out of their flags, and small caps are doing it as well, yet the average S&P 500 stock has not. This is now close to where the summer of 2023 relief rally would have run out of steam.
The EFA (I-fund) lagged but still had a decent gain. Most of the lagging had to do with the late buying in US stocks, plus the strength in the dollar yesterday. Otherwise, this is already close to knocking on the 2024 highs.
BND (bonds / F-fund) was up slightly and with it being in a gap right now, and with other open gaps above and below, this could go either way in the short-term. The bond bears may have a slight advantage if the 10-year yield holds at its support.
Thanks so much for reading! We'll see you back here tomorrow.
Tom Crowley
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