TSP Talk Blog

Stocks rallied on more good earnings reports, and yesterday there was a little less profit taking and more jumping on the Facebook bandwagon. The Dow gained 239-points, or 1%, while the Nasdaq shined with a gain of 1.64%, but we saw pockets of weakness as the Dow Transportation Index was down almost 1% on the day, although it did climb back from an early nearly 2% loss.

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Small caps were up about 0.6% and the I-fund lagged after another impressive rally in the dollar.

The 10-Year Treasury Yield took a breather on Thursday and, combined with some great earnings, stocks had the green light to bounce back from earlier weekly losses.




Facebook did hold onto some big gains and that seemed to be the catalyst for the FAANG stocks, which are basically the Nasdaq 100 Index leaders. Earnings have been so good that expectations of 18% growth this quarter has turned into closer to the mid-20%, plus guidance has been raised in many cases.

We got a few more big names reporting after hours yesterday. Amazon was jumping after the bell, as was Intel, while Microsoft and Starbucks were drifting lower. The Nasdaq futures were up big, about 1.5%, while the Dow futures were only up 9-points (as of Thurs. 6:40 PM ET).

That may not necessarily be a good thing for the short-term if you're considering chasing the gains in the Nasdaq. This is from sentimentrader.com...

"The Nasdaq 100 fund, QQQ, enjoyed a 2% rally on Thursday and thanks to a good reception to after hours earnings, is on track to gap up more than 1% on Friday morning. In its history, it has gapped up 1% the morning after a 2% rise 73 times, with its most consistent performance being a week later, when it added to the gains 26 times (a 35% win rate). If it was above its 200-day average at the time, its win rate did not improve, at 35%. If it was below its 50-day average, then the win rate dropped to 32%. Not a great setup for those chasing higher prices at the open."

The fact that stocks are still well off their highs given this great earnings information, is a little troubling. Investors seem more concerned now with interest rates climbing so we're seeing a mixture of buying and profit taking. The thing is, earnings are climbing, but so are rates so the battle will continue.

Yesterday's rally may be a trap, or it could have sparked something the bulls have been waiting for, and only time will tell. The charts have some resistance roadblocks like the 50-day moving averages, bear flags, and head and shoulders patterns, and that's what we'll be watching going forward.

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The S&P 500 / C-fund had a solid day yesterday and Friday looks to want to start on the upside thanks to Amazon and Intel. We got a bounce off the 200-day EMA and potentially a higher low, but the chart is up against the 50-day EMA and the bottom of a bear flag so this isn't an easy of a call as it may appear.




The small caps / S-fund lagged a bit yesterday and is still arguably in a downtrend, but it is back above its 50-day EMA. I didn't draw it in here, but as we've shown recently, there is a head and shoulders pattern on the chart with a neckline near 1310 - 1315 that still could get tested.




The Dow Transportation Index took a hit yesterday after weakness in airlines stocks. It closed well setting up a possible positive reversal day so we'll see if it can follow-through with that while dealing with the resistance of the 50-day EMA.




The EAFE / I-fund was up but lagged because of a strong dollar.




The dollar rallied above its 200-day EMA, showing quite a bit of strength, which may have to do with U.S. yields rising. This looks like an area where the dollar's rally might stall, but if it doesn't, the I-fund wouldn't be the place to be.




The AGG (Bonds / F-fund) bounced up on the dip in yields but you can see it only got back to the bottom of the old broken support line.




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Thanks for reading. Have a great weekend!

Tom Crowley


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