A mostly flat day for stocks yesterday, but the bulls won the battle, pushing the indices near their highs of the day by the close. There were some stimulus talks that may have helped, but certainly nothing concrete. The Dow gained 60-points on the day and while the Russell 2000 small cap index was up, we did see a small loss in the S-fund. Bonds were down again, falling below a key support level.
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Despite the flat indices, the internals were actually stronger yesterday than during Tuesday's rally.
Despite more positive vaccine data, Fed Chairman Jerome Powell called the economic outlook “extraordinarily uncertain” yesterday when he spoke before Congress.
The market is counting on stimulus, which of course investors want to hear and folks who've lost their jobs need, but that has a negative impact on the dollar, and the chart sure shows it. That head and shoulders pattern broke down in November after a failed head test. Typical H&S action.
I don't know why I included gold above, but I thought it was interesting that gold, which tends to move counter to the direction of the dollar, has been underperforming in recent months. Something happened in early August that changed that counter trend.
Rising gold prices is generally a hedge against inflation, something a weak dollar can trigger. Stocks have been not behaving as if there is an issue with low inflation so, if you're so inclined to do so, gold may be down to a level - the 200-day EMA - that may be starting to look attractive again, after the multi-year run up. Investor may have been selling gold to jump in stocks, but now gold may be the better bargain.
That's what I am still looking for in the stock market. Overextended markets tend to eventually pull back. It's not always easy to determine exactly when that will happen, but it eventually happens. Gold may continue lower from here because obviously markets can get undervalued before they rebound, so it will be interesting to see if gold bounces here the 200-day EMA again, whether because the dollar stabilizes or just because it has come back from lofty levels and may be the better value.
The jobs report for November comes out tomorrow and estimates are looking for a gain of 650,000 jobs, while the unemployment rate is looking to hold at 6.9%. I heard something from Steve Leisman on CNBC that made me think this report may be weaker than that, and that would make sense given the jump in COVID cases last month, but we'll see.
I'll be in my office up until the TSP deadline this morning, but I will be on the road after that and traveling into a different time zone, so my response to emails, updating the Autotracker, and posting Friday's report could be off my normal schedule.
The S&P 500 (C-fund) closed at another new high yesterday as the stretch continues. There's a bunch of resistance in this area whether you look at a short-term, or long-term chart, but so far the bears seem uninterested in getting involved. That said, the fact that the S&P is less than 100 points above where it was at the high in early September means it has been consolidating and digesting that rally's peak up until that point. Can it go higher? Absolutely. Anything can happen in the short-term, but given the current economic environment it seems like there's going to be a price to be paid eventually. Maybe the jobs report will be a wake up call for the excess enthusiasm, or it could be confirmation of why stocks are rising. We'll see tomorrow.
The DWCPF Index / S-fund was down slightly but it closed well off the lows of the day. There has been a break in the rising support line this week, and we can only wait and see if that means anything. The first break tends to be a warning sign, but they can mend quickly. But if not, maybe the inevitable pullback will start.
The Dow Transportation Index also broke below its sharply rising trading channel this week, but it is still sitting near those all time highs.
The EFA / I-fund
is forming another flat top formation. Normally a warning sign, the I-Fund rallied after the flat top in November. Open gaps are still looming.
The VIX was up 2% yesterday, which is a slight warning sign on a positive day for stocks. Notice that it closed just above that old support line again, after three closes below it.
BND (Bonds / F-fund) was down moderately for a second day and the technical analysis on this chart continues to throw me off. I thought we saw a clean breakout above resistance, and successful test, but over the last two days it fell back into the descending channel. Perhaps it is just a retest of the 50-day EMA.
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