Stocks had a big follow through day on Friday after Tuesday's reversal rally. The Dow gained 361-points or just over 1%, while the other major indices performed even better. The action looks strong but there are still a few obstacles - especially in the broader Nasdaq and small caps indices as we'll see in the charts. Bonds rallied and the dollar was down. Despite the big gains to end the week, all of the TSP stocks funds lost between 1.3% and 2% on the week.
| Daily TSP Funds Return
The internals were outstanding. Typically a 9 or 10 to 1 ratio of advancing share volume is a good sign that the worst is over, and on Friday it was 8.5 to 1 on the NYSE, and nearly 8 to 1 on the Nasdaq.
What could get in the way? These next three charts are the ratios between the S&P 500 vs. the S-fund (DWCPF), the I-fund (EFA) and the Nasdaq 100 (large cap tech.) Right now the Dow and S&P 500 are doing just fine and are near their all time highs, but those other indices have struggled and I would suggest that the market remains sketchy until these charts break their downtrend - which could easily happen, but hasn't yet, so I remain somewhat skeptical, but optimistic.
But even if it doesn't happen and we don't see these charts breakout, even a move back to the tops of those channels can produce a decent gain that can be used to lock in profits if the resistance holds and they turn back down.
The dollar was down for a second straight day so it may be in the process of creating another lower high. There are two open gaps above the current level (green boxes) and on below (red.) It remains below the 50-day EMA so the bears have control here, but there could be some support at the February low. Stocks struggled quite a bit last week during that three day rally in the dollar, and rebounded when it pulled back on Thursday and Friday, in case you wonder why I keep posting this chart...
The yield on the 10-year was also down for a second straight day on Friday after a big rally on Wednesday, so there seems to be a clear trend of what the stock market is reacting to.
The S&P 500 (C-fund) rallied nicely for a second straight day on Friday. It nearly filled the open gap created last Tuesday, and stalled but still gained 1.49% on the day, and who can argue with that strength? The trouble is, it has to get above there now and the bears may have something to say about it. As of this writing the futures haven't opened yet on Sunday and I suppose we could get a gap up above that resistance and make my point moot. The 50-day EMA is holding and it closed back above the 20-day EMA, and those are always good signs in a bull market.
The DWCPF (S-fund) surged 2.6% on Friday pushing it near a confluence of resistance, so if it can get above 2130 and then the 50-day EMA, I'd say the bulls would be back in charge, Until then, look for the bears to continue to keep the pressure on.
The EFA (I-fund) gapped up on Friday and gained 1.67%. The 50-day EMA has held firmly as support and the higher highs tells us that this remains in a strong bull market. However, new highs must come next or the "top" talk may start.
The Transportation Index actually made its second highest close ever on Friday. Any chart that starts in the bottom left and ends in the top right can only be described as a bull market.
The Nasdaq 100 large cap tech stock index had a big day on Friday with that 2% gain, but it is now contending with the 50-day EMA after five closes below it. This is a big test for this index, although the higher low we're seeing right now, after April's higher high is encouraging.
BND (F-fund) rallied back up to the 20-day EMA and toward the bottom of that broken channel. The stocks market seems to be doing better when bonds are rallying, so it's a little concerning that this is up against a lot of resistance coming into the new week.
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