Early on yesterday it looked like stocks wanted to take a pause after the big two day rally, but by late morning we saw buyers step in and it kept the rally going. The Dow gained just 35-points but the broader indices did much better with many closing near the highs of the day. There is still some potential overhead resistance and some gaps that need filling, so we could still see some digestion of the recent gains. Bonds and the dollar were down sharply and the yield on the 10-year moved back above 1.5%.
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Market breadth was positive on both the NYSE and the Nasdaq with ratios of about 2 to 1 or better in favor of advancers. We also got a second consecutive day of less than 70 new 52-week lows on the Nasdaq after seeing 600+ for a couple of days during the sell off.
The yield on the 10-year Treasury was up, although it did pull back off its highs of the day. With the double top near 1.7% and a lower low in December, we can say this is still in a downtrend, but if the Fed is planning on raising rates, we "should" see this continue to move higher, unless we get some weak economic data that could change that theory.
The dollar was down, breaking a short-term rising channel and nearing a 3-week closing low. There is a lot of support in the 25.60 area. If that breaks down in the coming days, the I-fund becomes a more intriguing possible play over the U.S. funds.
We get an important Consumer Price Index report (CPI) on Friday before the opening bell, and these have been market movers lately with inflation concerns and interest rates on the table. The market will be on full alert with the impending FOMC meeting on Tuesday and Wednesday of next week.
The S&P 500 (C-fund) had another decent day after a fairly slow start where it was having trouble going positive. It bumped up against the previous closing high when it hit its intraday peak yesterday. This could be the start of an inverted head and shoulders, which is generally a bullish formation, but with the left shoulder and head fully formed, that could mean a possible right shoulder pullback if we don't see a breakout soon. There is also a slew of open gaps below that we have to be concerned about as well.
The DWCPF Index (S-fund) was up another 1% on the day so there was some nice follow-through again here. The open gap is there near the 200-day average as a possible pullback target if there is a test of the lows, but I like that it closed above that orange moving average yesterday. That average held as support repeatedly in 2021 until it finally broke down in late November, so closing back above it is a good first step toward a possible firm bottom.
The EFA (I-fund) didn't have the day that the U.S. stocks had, but a lot of the gains in the U.S. came after the European and Asian markets were closed. The dollar was down so that was helpful, and if the dollar continues lower as the chart is hinting, 2022 could be a good year for the I-fund. It may be due for a some leadership after lagging for many years.
BND (Bonds / F-fund) was down and it fell right through the moving averages yesterday which were possibly the last hope of keeping it from falling to fill that open gap near 84.60. Now a test of the lower end of the channel is very possible.
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