Is this the start of the melt up stage of the bull market? Possibility, and if that the case, throw all your charts and indicators out the window like we should have done during the COVID crash, and the COVID rebound. They didn't help and they didn't matter. As a matter of fact they hurt me badly in 2020 as I tried to take the emotion out of trading and stick to my indicators, which got me to buy stocks way too soon when they were on the way down in March of 2020, and sell stocks way too early after the huge bear market rallies - that never stopped.
That's the potential problem going forward for market timers, but of course in the first half of 2020 it took a pandemic to put us in that situation, so it may be less likely to occur. However, there can be melt up phases in bull markets and the action late Friday makes you wonder if we're there now. We'll see if there's any follow through early this week, or if the buy side was overdone on Friday and we get some profit taking.
Deposit the late push higher, the internals weren't all that positive In fact they were negative on the Nasdaq, but as I said above, the index spent much of the day in negative territory before the late, quick rally..
I am still concerned about how the stock market might react if the price of oil tumbles, and the chart certainly indicates that might be a good possibility. That's a bearish head and shoulders pattern, sporting a bear flag in its right shoulder, and it has been trading below the 50-day EMA for several days now. It may take something to trigger it, but if it does break, that 200-day EMA looks like an easy downside target. Stocks probably won't like that.
Our S-fund is made up of a lot of small oil refinery type companies, and also small regional banks, which start to report earnings this week, so it could be an interesting week for the small caps. We know how explosive that S-fund can be when it's good, but the Russell 2000 small caps index is already showing signs of lagging as it forms the right shoulder of its head and shoulders pattern.
In recent months not all stock indices have been acting similarly so
allocation picking is important. We could see the one of the TSP
stock funds move higher while one moves lower, which isn't all that
common, so use your IFTs wisely.
The S&P 500 (C-fund) was sporting a small gain on Friday until those final 30 minutes of trading, when it shot up toward the top of its recent intermediate-term trading channel. If we are entering a melt-up phase, it might cut through that resistance like a hot knife through butter - otherwise there is a lot of gain over the last 11 trading days off the March 25 low that needs to be digested. It could also grind up along the bottom of that resistance line like it did in mid-February, before pulling back.
The weekly chart of the S&P continues to show just how extended the index is. Over the last three years it hasn't been anymore above its 50 or 200-week EMAs than it is right now.
The DWCPF (small caps / S-fund) has been lagging but most recently it has been forming a bull flag and the late rally on Friday has it poking just above the flag. A follow-through upside move could easily see a rally test the descending resistance line, but from there it could get tougher.
The EFA (I-Fund) rallied and tested the prior early April high. Perhaps somewhat over-extended, but it's tough to find much bearishness on this chart.
The Dow Transportation Index closed at its highest level ever on Friday after another minor dip reversed up and created another higher low. This rally has been going strong for over two months now with just a couple of quick pullbacks.
BND (bonds / F-fund)
has been consolidating in a bearish looking flag since it made a low about three weeks ago. It hasn't been an impressive bounce off the lows and if it can continue higher, that 50-day EMA may be some tough resistance.
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