Another giant day for stocks on Tuesday as the froth on top of this November rally gets thicker. The melt-up continued as the Dow gained another 455-points, pushing the index above 30,000 for the first time ever. Looking at the intraday charts it looks like no one hit the sell button all day. Of course that's what sends stocks higher, but when it happens we see extremes in many indicators showing that things have gotten too hot, and any bad news would fill the vacuum being created on the downside.
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The Dow was up 3.6% in mid-February before the rug got pulled out from under it. We came into this month with the Dow down 7.1% for the year, and here we are, after a double digit gain in November, and it is now back up 5.3% for the year. That's quite a run to get us back to basically where we were some 8+ months ago.
Fundamentally, I don't think the economy or the market is back to the same conditions as it was back then, but the market looks forward and is anticipating more stimulus, on top of a 0% interest rate environment, and a Fed M1 balance sheet at an insane level, making for ideal conditions to be in stocks, even if it's mostly smoke and mirrors. Easy money.
Even with that, it doesn't take much to trigger a run for the exits because most investors know things are getting frothy, but they will stay with the trend, until the trend ends. So the question is, what will be the trigger that ends this trend? The charts look OK now, although extended, and forget about the indicators. They are already off the charts in most cases.
Admin Note: The TSP is closed on Thursday for Thanksgiving and I won't be posting a commentary. I will post some kind of update on Friday but it will be a quickie. I will post the updated shares and returns, and some brief thoughts, especially if we have any big moves in stocks or news leading up to it.
The S&P 500 (C-fund) made its highest close ever on Tuesday although it didn't quite make it to the peak on November 9th, the day Pfizer announced their 95% efficacy in their vaccine trials. On the following Monday, the 16th, we had the Moderna vaccine news and we got the highest close in the S&P to date - before yesterday. Yesterday's rally seemed like chasing because the news wasn't spectacular, but the FOMO traders are jumping in, and they are usually the last one's to show up to the party.
The year to date chart shows a nice looking bull flag and all year they have done well, as you can see the other blue bull flags below. There is some resistance just overhead so this one could have more pushback than the prior ones.
The 10-year chart shows that the S&P 500 is pushing almost every extreme possible, while exceeding others. The market rarely makes it easy for traders to hit the sell button right at the top, so it wouldn't be that surprising to see a little more upside, just to frustrate the most people it can, but this is a little scary, and if you are anywhere near retirement, I think your nest egg in stocks could be getting vulnerable.
This chart shows the 50 and 200 day EMA and how far the S&P 500 is currently above them compared to other instances in the last couple of years. It was even more stretched in February, but we know what happened then once we got some bad news.
The DWCPF (S-fund) is in the same boat - great action - nosebleed extended.
BND (F-fund) pulled back for a second day and it is now testing the old broken resistance line, looking for support.
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Thanks for reading. Have a Happy Thanksgiving! I'll be here Friday with a brief update.
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