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Another gap higher

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Stocks rallied again on Tuesday posting the best two-day rally of the year, but it also created a second consecutive open gap on the S&P 500 chart, a very rare event. The Dow gained another 232-points with about 100 of those points coming from two big movers, McDonald's and Caterpillar. Because of those large cap movers, the broader indices didn't see quite the same percentage gain, but solid gains none the less.

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The Nasdaq closed over 6000 for the first time for those who are interested in that kind of milestone.

Bonds and gold were down sharply yesterday bolstering the argument for stocks. There was a little concern on Monday when those safety trades held up well while stocks were rallying, but yesterday's action took some money out of those safety trades.

Stocks were hanging tough for weeks despite an onslaught of negative outside influences recently so it seemed like it was waiting for a reason to rally, so the French election results, the potential tax reform this week, and some recent earnings gave it all it needed to make its move higher.

There are some temporary roadblocks out there now as we see double tops on the charts and of course we know that open gaps loved to get filled. Also, the Transports were actually down slightly on the day and may still be in an ominous looking bear flag.

What would help get over those roadblocks? Well today the Trump administration is supposed to release their plan on tax reform. I think any talk of a corporate tax rate under 25% would be another bullish market mover. Also, any surprise incentives to small businesses would be huge for the Russell 2000 and our S-fund. Anything less than that and investors may have a reason to take profits.


The S&P 500 / C-fund gapped up for a second straight day yesterday. I'm not using the SPY chart today because for some reason the SPY chart doesn't show Monday's large gap. That means someone got a very good price to buy shares of SPY at the open on Monday. Open gaps on the S&P 500 index don't tend to last very long. Rarely is one left open after the close, but two being open is really rare.

The upside target of the inverted H&S on this chart is about 2405, which is right about where the index stopped in March so a little double top dip could be coming. Those double top dips don't have to last very long, but it's pretty standard action - although the Nasdaq did not have a DT pullback and made new highs.




The DWCPF (S-fund) and the Russell 2000 both made new intraday highs but closed below the March closing high and it's a clear double top situation. The two open gaps are glaring and could be targets for any pullback, and that would be a nasty pullback to see them both filled. I'm not saying they will get filled soon, but gaps do tend to fill rather quickly. Occasionally, one will remain open for a long time, like the gap that is still open on the SPY after the election. A meaningful push into new highs here would be a very big show of strength for the small caps. Tax reform for small businesses, anyone?




The Dow Transportation Index was the lemon in yesterday's lemonade. It was down slightly but you can see it stalled at very important level. It's big move above the 50-day EMA was key but now it sits at the top of a possible large bear flag. It must close above 9300 or that gap will likely get filled, and it could take a trip back to the bottom of the flag.




The EFA (I-fund) gapped higher at the open and is now testing the top of that large rising trading channel. Talk about an open gap, and now there are two...




The AGG (Bonds / F-fund) was down as investors finally sold bonds in favor of stocks.




Gold also ran out of steam after a big comeback on Monday. The stock market bulls would probably prefer to see gold and bonds selling off while stocks rally.




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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S&P500 (C Fund) (delayed)

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DWCPF (S Fund) (delayed)

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EFA (I Fund) (delayed)

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BND (F Fund) (delayed)

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