It was another snoozer on Wall Street Monday with a bullish bias as the small early losses turned into small late gains by the close. The Dow gained 31-points and the gains pushed the big three indices into more new all-time highs. Small caps lagged a bit and the Transports closed flat after coming back from a sharper early loss.
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There was some trade pessimism early on, but the modest losses in early trading indicated that it was not much of a concern. Stocks did start to turn positive after it was announced that President Trump and Secretary of the Treasury Steve Mnuchin had a “good and cordial” meeting with Fed Chair Jerome Powell yesterday, but who knows what really went down?
The internal action wasn't quite as strong as the indices were showing as both the NYSE Index and the Nasdaq each had over 500 more stocks down than up on the day.
There are a lot of red flags out there that I can see, but we have seen this before where momentum move markets higher a lot longer than any of them might indicate. We're not quite at the parabolic stage that we saw in early 2018, but it has been quite a run since the lows in early October.
The S&P 500 (C-fund) keeps chugging along in that narrow trading channel. It would seem silly to fight this trend, but this is a long "F" flag and they do tend to break down, and when they do break it can be quick and nasty, so the question I have is, how much of the recent gains will be erased when this does break, and will there be time to react if you're bold enough to still be riding this wave?
The S-fund was basically flat but it came back from some early losses to close near the highs of the day. There's some resistance at the July highs meeting with some rising resistance off the September peak so if small caps are going to keep advancing, they'll have to break through that double dose.
The Dow Transportation Index also reverse nicely off its Monday morning lows and in the process it kept that open gap near 10,750 open. The bounce came right at the rising support line off the October low, and the bulls obviously made a stand yesterday.
The EFA (I-fund) broke its rising channel last week but bounced back from that pullback over the last two trading sessions. It could be a little tired here as it is getting quite extended above its 50 and 200-day EMAs.
The price of gold has been drifting lower since the peak in September, similar to the AGG bond chart below, and those could be considered bull flags. Bonds and gold are considered safety trades and they tend to rally when stocks are falling, so if these bull flags start to move to the top of the flag - and breakout - that will be a meaningful warning sign for stocks, so watch these flags for signs of a breakout.
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