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Japan's QE triggers global rally

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Stocks ended a turbulent month with an explosion out of the gate on Friday morning. On the day the Fed officially ends the U.S. quantitative easing program, the Bank of Japan announced their own version of QE and stocks around the globe rallied strongly.

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Japan's Nikkei Index jumped 5% on the QE plan and that helped the I-fund to a near 2% increase on Friday.


The SPY (S&P 500 / C-fund) chart has a lot going on, mostly bullish, as it made a new closing high but clearly it has come a long way in a short amount of time. That makes it short-term overbought, but it is actually only slightly higher than where it was back in August and September. The question now is whether it has the strength to breakout with any authority now, or does it need to refresh with a little pullback before doing so. If it does pullback, that would create an inverted head and shoulders pattern (H&S).

Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk

Inverted / inverse head and shoulders patterns are bullish in a bull market, but if the the right shoulder forms, it would give the SPY a modest pullback.


Revisiting the mid-term election chart, we see the late October / early November spike higher into election day, but then things move mostly sideways until the latter part of the month. In this revitalized bull market, that may be the best the bears can hope for between election day (Tuesday) and Thanksgiving week.




The
Wilshire 4500 (S-fund) moved sharply higher on Friday remaining in the ascending trading channel.


Chart provided courtesy of www.stockcharts.comm
, analysis by TSP Talk

The Russell 2000 broke through what I thought could be stiff resistance, and it did it without much trouble at all. It opened another gap and remains within the rising channel, but I would be very surprised if that new gap doesn't get filled this week.


Chart provided courtesy of www.stockcharts.com
, analysis by TSP Talk


The EFA (EAFE Index / I-fund) gapped up above the the 50-day EMA and the descending resistance line I had been worried about for the I-fund. Instead of acting as resistance, it just gapped open above is all. Now, if we expect to see this gap get filled, it will have to fall back below two old resistance lines, which tend to act as support.


Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk


The reason for the big gap up was because the Japanese markets jumped nearly 5% to new 52-week highs. QE can cause interesting reactions. The question in Japan will be whether that is a green light for continued gains, or will investors start taking profits after the emotional 5% rally.


Chart provided courtesy of www.stockcharts.com
, analysis by TSP Talk


Bonds were flat on the day although the F-fund did fall 0.11%. The trend remains down since the October peak, which could turn out to be a long-term top. There is strong support near that blue circle.


Chart provided courtesy of www.stockcharts.com
, analysis by TSP Talk



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Thanks for reading! We'll see you back here tomorrow.

Tom Crowley



Posted daily at TSP Talk Market Commentary

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Comments

  1. bmneveu's Avatar
    IWM (track Russel 2000) shows a break above it's neckline from Friday's gap up, while SPY and w4500 still have a ways to go before touching their respective necklines.

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