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TSP Talk: Is it time to sell the news?

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Modest gains for the Dow, and solid gains elsewhere on Tuesday after last week's pre-holiday selling. The Dow added 116-points and once again it was the small caps and particularly the Nasdaq taking the lead on the upside. After the bell we got the first FAANG stock to report earnings and the stock was flying. Bonds rallied and the dollar dipped again.
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Yesterday's gains grabbed back much of the losses we saw on Thursday and Friday of last week as the major indices reach for new highs again. It was a good example of those holiday reversals where the action leading into a long holiday weekend bucks the trend for a few days that stocks had been on, then reverses back in the direction of the trend after the holiday, which of course was higher.

After the bell the first FANNG stock reported and Netflix was rallying strongly - up almost 10% in after hours trading yesterday. I drew in where it was trading as of this writing and you can see that it has been in a long consolidation and it is now pushing the upper end of its trading range that goes all the way back to last summer. The question traders are asking is whether this is finally ready to break out to new highs like most of the other Nasdaq stocks had been doing all along. The bull flag makes a breakout a good possibility, but if the channel continues to hold, today's move could just be a test of the top of the range.

Of course Netflix was one of the big "stay at home" stock plays during the pandemic, and it had a huge run from the March lows to that July high, and since then it has been digesting those gains. Once we started to open up businesses again and the vaccine talks started to get real, the stock stalled.

Not that the market follows Netflix because we'd actually prefer to see the "stay at home" stocks lag because it would be an indication of a possible end to lockdowns and more normalcy. If this does breakout a move to 800 wouldn't be an outlandish eventual target for the bull flag, but I don't want to get too far ahead of myself because if this doesn't breakout soon, 475 could be back in the picture. Like I said, it's not exactly a market bellwether, but it could give a boost to the Nasdaq and other stay at home stocks today.

Today is inauguration day and I saw this on CNBC yesterday. It's a chart of the average return going forward when there is a party change in the presidential election. The -0- on the X-axis is election day and you can see that most of the excitement of a new party's agenda tends to get priced in during the first couple of months, which brings us to inauguration day, which is about where this chart peaks.

We talked about this in yesterday's commentary where we may be setting up for one of those, buy the rumor, sell the news reactions. Looking out about a year, the first year with a new president tends to be quite choppy, and that's good news to me as a market timer. Trying to chase parabolic moves, both down and up, hasn't been all that easy over the last year.

The S&P 500 (C-fund) rebounded on Tuesday to grab back Friday's gains, but it is still a few points off the all-time highs. That looks like a possible bull flag forming, which would insinuate a possible breakout to the upside, but as we talked about, the market may be setting up for a sell the news reaction to not only the inauguration, but to the release of earnings over the next few weeks.

The DWCPF (S-fund / small caps) made a new closing high last Thursday and it closed just below that yesterday. Everything keeps pointing higher but can the economic picture justify the 100% plus gains that we've seen here since last March, and the 35% gain since early November?

The EFA (I-fund) moved right back into its rising trading channel after another brief breakdown. There was the lure of the open gap it is trying to fill just above 75.0, so we'll see how it reacts once that is filled.

The Dow Transportation Index was one of the victims yesterday as it lost another 0.36% yesterday, and in the process closed below the prior highs, so we have a possible failed breakout here, although it may be too early to declare that yet.

BND (bonds / F-fund) was up on the day although it had to come back from some early losses to do so, and it remained in the range between 87.20 and 87.50, where it has closed for the last four days. This is remaining range bound here between these red support and resistance lines, where it has traded since August.

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

Tom Crowley

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