Stocks started out slowly on Tuesday but the momentum built as the day wore on. Except for a late dip, the bears were nowhere t be found after that opening. If the bears are going to make a move, selling a two day bounce off the recent lows may be their best chance, so we'll see if they have any desire to make a move today. Seasonality is on the bears' side this week, so if they can't do it now, they may be done. The Dow gained 69-points on the day, and the Nasdaq and small caps led with solid gains over a half of a percent.
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The Dow is actually still below its 50-day EMA, and only the Nasdaq is hitting new highs, although that is impressive. The S&P 500 (C-fund) is close, as is the S-fund's DWCPF index. So the question for those two is whether trading at the top of the range means they are running out of room on the upside, as you'll see in the charts, or if they are ready to breakout like the Nasdaq is attempting to do.
The debate is whether inflation is going to be a problem. The Fed walked back a little of their concern yesterday saying they don't see inflation getting as bad as it was in the 80's. Well, that's good news because the
CPI (Consumer price Index) was 13.5 in 1980. In May the year-over-year basis, the total CPI was up 5.0% and the Core CPI was up 3.8% year-over-year, which was its largest increase since June 1992. So hitting 13 may be a stretch as a comparison.
So there are signs of problems, but the Fed may just keep doing what they have to do to keep it from getting out of hand.
Internally the numbers were positive yesterday but perhaps not as much as you'd expect with the solid gains across the board.
The dollar was down, but it did rally last week on Fed's interest rate talk, while the bond market continues to act as if it is not concerned about inflation, but of course the Fed has been buying bonds furiously since COVID, and that keeps yields down.
If the Fed starts to taper their bond buying... well that is the question. Where do bonds go from there? The obvious answer is bonds go down and yields fly higher. The question is whether the Fed will allow it to happen.
Gold is also an indicator of inflation, and while it was rallying nicely from March to the end of May, it has since sank down, particularly once the Fed talked about raising rates -- in a couple of years. Perhaps this is a good time to buy gold because that sell off seems a little overdone considering there will likely be no action on rates for years.
The S&P 500 (C-fund) moved up toward the all-times highs but a little dip near the close pushed it off that number again. 4250 - 4260 has been solid resistance but if it keeps a knock'in, eventually it will be let in (breakout.) Another failure here could be trouble. If the Fed did say something that is of consequence to the market, then why would the losses it incurred be gone two days later? Again, the question many are asking is how serious is the Fed about raising rates and tapering their bond buying?
The DWCPF (S-fund) followed through on Monday's rally with another rally. This looks promising but there is obvious resistance overhead that everyone can see. Will we see profit taking in this area again, or new highs for the first time since February? That's a pretty long consolidation, so if it does breakout, the upside target would be significantly higher, but be on the lookout for selling at the top of the range and / or a failed breakout.
The EFA (I-fund) was flat and most of the recent weakness has been a result weakness in Japanese market, which accounts for about 25% of the I-fund. Yesterday's high nearly filled one of the open gaps so now getting back above 80 will be key, and possibly a little tough.
The Dow Transportation Index was up modesty but the spinning top yesterday shows some indecisiveness from investors. It remains in a descending channel off the June high, with more resistance up near 15,600 from the May peak.
BND (bonds / F-fund) was up again, yields down, as the Fed down played their talk of rate hikes yesterday.