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Rally continues, but is it getting euphoric?

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Stocks rallied again on Monday as the change in economic growth perception has investors racing into the market. Percentage-wise is was a good day as we saw 0.5% gain in the S&P and Nasdaq, while small caps added about half of that. The Dow was up a bit more percentage-wise jumping 143-points.

Triple digit gains are welcomed by investors and can get those emotional juices flowing, but they aren't what they used to be. Eight years ago a 100-point gain in the Dow was gain of 1.42%. Today it's just 0.49% so we see a lot more of them, but still, it's a nice gain.

Daily TSP Funds Return

When buy and hold investors or money managers hear something from the President about lowering taxes for both individuals and corporation and talk about repatriation of overseas money, they are buying stocks because they think it means the economic conditions are favorable for the stock market 2, 3, 5, or even 10 years down the road because of these policies. We are seeing the results of that.

However, if your time horizon is more about where the stock indices will be in the next few days or weeks, you wouldn't react in the same manner. There's long term market gains, and short-term trading opportunities. For example, look at this chart of the XLF financial sector fund.




The peak of the financials was made in 2007 and it is now just getting toward those 2007 highs now. Actually if you include dividends anyone who bought the top in 2007 would have just broken even yesterday.

Anyway, in early to mid-2007 there was no fear in the air and no one was saying, if I buy here I hope I get my money back in 9 years. They had no clue. But within that 8-year period there were a ton of opportunities to buy and sell and try to trade in and out to make money.

So the point is, there will always money making opportunities but not everyone is buying right now for the same reason. Some are buying here to try to grab a couple percentage points and get out. Some are in it for the long haul. The reasons are debatable as is every approach to investing / trading in the stock market but you don't have to be a buyer here because everyone else seems to be. It depends on your time horizon for the trade.

I put a survey on the homepage asking where folks thought stocks would go from here into the end of the year. 88% said the S&P 500 will be going higher. I'd actually feel a little better about the market if there was a little more distrust out there. Can almost 9 out of 10 investors be correct?


The SPY (S&P 500 / C-fund) gained another 0.54% yesterday as the post Trump tax comment rally continued. This is now actually the 2nd longest winning steak for the S&P since the election. We saw a 6-day winning streak to start December, but after that stocks went sideways for several weeks. Still, there have been no signs from the bear that they want to step in front of this market momentum so the bulls continue to have free reign. We know that won't last forever, but who knows how long this can last?




The DWCPF (S-fund) pushed through the top of its flag pattern on Friday and held that on Monday. Will we get the 3 to 5 day breakout confirmation, or will it be a turnaround Tuesday?




The Dow Transportation Index tested it recent highs again. Triple tops are usually a little better than double tops so a breakout here is looking good, but it is still resistance.




The EFA (I-fund) pushed to new highs and moved back within its rising wedge pattern. This is really interesting action as in chart after chart, bearish looking formations have been coming out smelling like roses.




The AGG (bonds / F-fund) was down yesterday and remains between the 50 and 200-day EMAs looking for direction. The recent trend has been up but resistance is trying to hold.




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 back here tomorrow.

Tom Crowley


Posted daily at www.tsptalk.com/comments.php

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Comments

  1. FireWeatherMet's Avatar
    "Eight years ago a 100-point gain in the Dow was gain of 1.42%. Today it's just 0.49% so we see a lot more of them,"

    Very nice take on perception based on the past versus todays reality.

S&P 500 (C Fund)
S&P 500 INDEX,RTH (^GSPC)
DWCPF (S Fund)
Dow Jones U.S. Completion Total Stock Market Index (^DWCPF)
EFA (I Fund)
iShares MSCI EAFE Index (EFA)
AGG (F Fund)
iShares Lehman Aggregate Bond (AGG)
Source: https://finance.google.com/finance