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A Monday morning gap... that held

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Stocks rallied to start the new week as the Dow added another 178-points, or 0.72%, on the day. The action was impressive given that it was a follow-through to Friday's jobs report rally, but also it was a Monday morning gap up that held. We did see some new highs in the Nasdaq and small caps, but the S&P and financials are still below some resistance, so can they catch up?

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If the bears are going to put up a fight, Turn-Around Tuesday would be a good time to try, otherwise they may step aside and let the bulls take charge again like they did in 2017. This market hasn't been a 2017-like market and, as we head into the summer months, the bears may make another stab at taking this down soon. The question is whether they can succeed.

Usually after a correction or bear market we start to see new leaders emerge but right now this market is being carried by the big names that have led for years. Make of it what you will, but we the mom and pop investors know these names and are back piling into them, so is that too easy and a setup for failure?

The S&P 500 / C-fund resumed Friday's rally after the bull flag breakout, but as we mentioned yesterday, there was an open gap near 2750 that could act as a rally killer once the gap was filled. So far that is the case on the S&P but today is another day for the bulls to prove me wrong. The top of the bear flag is still about 20-points above Monday's close if they can move above the gap.

The S-fund was impressive yesterday because early Monday morning, when the Dow was up about 200-points, the small caps lost their early gains and actually moved into negative territory. However, by the close they stabilized and made a strong move to new highs.

The Dow Transportation Index was actually down 0.73% bucking the trend of the general market, but it did remain in the "F" flag. Remember, F-flags can remain hold for some time but they do tend to breakdown hard when they do break.

The EAFE / I-fund rallied but closed well off the highs. After filling last week's gap (blue) it opened a new small gap (red) on the downside so that could add some pressure in the short-term. The bigger open gap is on the upside, however.

To follow up on oil and the financials, which we talked about yesterday.... The price of oil was down sharply again on Monday.

And the financials rallied 0.33% but it too has not made it above that open gap from last week, and the top of the gap could become resistance.

The High Yield Corporate Bond Fund rallied strongly and that was a good reason for stocks to rally. It moved back into the rising trading channel, but unfortunately that channel is part of a large bear flag.

The AGG (Bonds / F-fund) was down sharply as yields rose close to 2.95% again. There are still open gaps below but the question is whether the recent rally has broken the downtrend. Or, is the market destined for 3% yields again?

Read more in today's TSP Talk Plus Report. We post more charts, indicators and analysis, plus discuss the allocations of the TSP and ETF Systems. For more information on how to gain access and a list of the benefits of being a subscriber, please go to:

Thanks for reading. We'll see you back here tomorrow.

Tom Crowley

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