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What down day?

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Stocks closed higher on Wednesday although the Dow needed a late rally to push it into positive territory, as bank stocks moved higher at the completion of a bank hearing on Capitol Hill. Over all it was a tight trading range for the Dow which was down about 50 at the lows, and up 60 at the highs. The Nasdaq had a nice day and small caps shined getting back their losses from Tuesday with a 1.1% rally.

Daily TSP Funds Return

Lower yields yesterday may have something to do with small caps leading, but the market has been a little concerned with lower yields lately so that made the rally that much more impressive.

Trading volume was very light, in fact the lightest of the year for the S&P 500, as we head into earnings season with some major banks reporting on Friday.

Nothing really changed on the technical analysis front, although psychologically the bears were handed a defeat after they could only muster one down day after a sea of green days.

Which came first, the rally in stocks, or in oil? Look at this chart of oil which has been rising steadily since that December 24 low, just like stocks. The question is, which has been following which?

The dollar has been rallying so it's not that, since a strong dollar puts pressure on commodity prices. There's been no major signs of economic growth, something that can be a catalyst for oil prices. It was the Fed's dovish stance on interest rates that has stocks rallying, so I suppose investors may be looking for the economy to pick up with interest rates no longer rising. But the price of copper, also very sensitive to the economic environment, has been flat to slightly lower over the the last 6 weeks, unlike oil. I can't imagine demand is up all that much, but I did see where inventories were down, which would help the price of oil, but why are stocks going along with it as if in unison?

The S&P 500 (C-fund) moved higher gaining much of Tuesday's losses back. The gains haven't been huge of late but the slow grind higher has been relentless with the index being up in 8 of the last 9 trading days. Of course when gains are small it only takes a couple of bad down days to wipe them out. Heading into earnings both the bulls and the bears will have their game faces on and the bears may think of this as their opportunity to make a mark, but the bulls have thwarted all the bear's efforts so far.

Whatever was bugging the S-fund on Tuesday, was quickly dismissed on Wednesday as the DWCPF (S-fund) gained back all of those losses.

The Financials will take center stage at the end of the week as bank earnings start to rollout, and with yields falling there may be a headwind on their reports. Technically you can see that they have rallied strongly off the lows with the rest of the stock market, but notice they are still below several key resistance levels, which is also cause for concern heading into earnings.

The EFA (EAFE Index / I-fund) was up with a bit of a breeze at its back as the dollar dipped. It's in the middle of a rising trading channel so there's room on both sides, but that open gap is always a concern as the lure.

The yield on the 10-year Treasury has been a focus of late with stocks generally not liking when it goes down, but yesterday's decline in the yield didn't seem to bother them. I wonder if that will still be the case if we see another test of the lows?

The AGG (Bonds / F-fund) was up on the decline in yields and the F-fund continues to climb that slow steady line of support. The open gap is still there for the taking and a fill of that would also test that other support line (which was an old resistance line.)

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

Tom Crowley

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SPY (C Fund) (delayed)

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DWCPF (S Fund) (delayed)

( Real-time)
EFA (I Fund) (delayed)

( Real-time)
AGG (F Fund) (delayed)

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