We got some upside follow through yesterday to Wednesday's huge positive reversal day, just as the textbooks would suggest might happen.  The S&P 500 has been up four days in a row as it is reaching up to the previous highs, trying to get back last week's losses.  The charts look good but the Fed is looming.  A breakout to new highs or a sell the news reaction are the two real potential outcomes, and either one may be big.

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The PPI was in line with estimates while the Core PPI was a little hot but otherwise it was fairly benign data for the market that continues to be less concerned about inflation. 

As we mentioned, the market may not want a 0.50% cut so quickly from the Fed, and economic data that is a little strong is helping the 0.25% cut side of the argument, even though it pushed bond yields up a bit. 

The 10-Year Treasury Yield was up yesterday, inching back above the August low.  That keeps the possibility of a double bottom alive, and if that happens the F-fund could finally experience a pullback.  But another move to new lows will keep the bullish trend for bonds and the F-fund alive.  We all know the Fed is ready to cut rates, but has the bond market already priced that in?

         

The dollar was down sharply yesterday helping things like gold make a new all time high.  Oil and bitcoin were also up with the dollar's assist.

The market leading Dow Transportation Index moved back above its key moving averages and this is such an interesting chart.  If you put a gun to my head I'd say the head and shoulders pattern makes this look more bearish than bullish, but the positive reversal day and move back above those averages gives the bulls the short-term advantage.

       


This article on Yahoo Finance posted in our forum by exnavyew, suggests that the stock market will predict the winner of the presidential election.  It says:

"The S&P 500’s performance between August and October has accurately predicted the winner of every presidential election since 1984. In the years when the blue-chip index rises between August and October, the incumbent party has won every time, but when the S&P 500 has fallen over that period, it’s always signaled an impending victory for the challenger."

So, looking for clues as to what the market will be doing in the next 6 to 8 weeks, with the democrats currently in charge, and dare I say the anti-Trump sentiment at the top of most federal government agencies, I think anything that can be done to keep that streak alive will be attempted, meaning stocks may get the benefit of government action in the coming weeks, if possible.

This may be like the old Super Bowl tendency where the winner decides if the stock market is going to be up or down that year based on which conference wins, the AFC or NFC.  It worked until it didn't.  So, whether it will work or not, we don't know but will they try to do something about it?  If stocks do tumble, well, that may tell us something else. 

With three and a half trading days until the Fed releases their decision on interest rates, there is a possibility that a continued rally into next Wednesday could trigger a sell the news reaction afterward.  On the other hand, the closer the S&P gets the prior highs, the chances of an inverted head and shoulder pattern breakout increases as well, so it will clearly be a big day for stocks one way or the other.

The S&P 500 (SPY / C-fund) followed Wednesday's positive outside reversal day with another big gain and it is reaching up toward last week's highs, and also closes in on the all time highs made in July.  This looks like a bullish inverted head and shoulders pattern which often break out to the upside, but occasionally they come back to test the middle of the head.

        


The DWCPF (S-fund) led on the upside and while the small caps have not exactly lit the world on fire, there are still some signs of investors rotating out of large tech and moving into some of the more value plays in the smaller companies.  Yesterday's high did run into some possible resistance so another gain today will be technically helpful to the bulls.

        


The EFA (I-fund) had a nice day and the weakness in the dollar was a boost although the gain here matched the S&P 500's gain, so the decline in the dollar wasn't much of an advantage over US stocks.  The chart looks very good with that mass of support holding near 79.50.

        


BND (F-fund) pulled back slightly on Thursday and that's fine after the move it has had.  The trend is up but it may be a little extended in the short-term.

Thanks so much for reading!  Have a great weekend!

Tom Crowley


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