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Follow-through rally to new highs in the big 3

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Stocks followed through on Friday's rally by tacking on more gains on Monday, sending the the Dow, S&P 500 and Nasdaq to record closes. The highs of the day did come near the opening bell so there was some signs of fatigue after the recent big rally that started in early October. The Dow gained 115-points and the Transports led again on the upside with a gain of over 2%.

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This recent breakout for the S&P could be the start of something big, but sometimes we do get fake outs that suck people in, only to see stocks roll back over. The last two years have seen that kind of rollercoaster and you would understand investors being a little gun shy now that the S&P is near the top of the large range. Ironically, that's actually the investor sentiment that we would probably need to feed the rally. If everyone was bullish, there would be much cash left on the sidelines to do the buying.

That said, stocks don't go straight up forever and eventually this 8% rally off the lows will take a break and the question will be whether it will be a buyable dip, or another severe pullback within the two year range.

The S&P 500 (C-fund) broke out last week and added to those gains on Monday. It even broke above the rising trading channel with another gap up opening, and that makes two open gaps above the breakout line. There's also a larger open gap down near 2950, but that means nothing until those other two are addressed. This looks good and bodes well for a possible strong end to 2019, but short-term there may be some backing and filling to do to help refuel for an end of year rally.

The S-fund is getting close to those July highs, and that may be its target for this rally as the rising trading channel gets more narrow while approaching that possible double top.

As for where small caps may be heading form there... Back on October 10th I speculated that we may be seeing a giant bull flag forming in the Russell 2000 off the December 2018 lows. Here's that chart from 10/9...

Here's what has happened since.

It may be a little early to call it a breakout, but that is how one would start. This chart also shows you how far the small caps are from their all-time highs from back in 2018. By the way it looks like the $RUT chart is not available on anymore, so we'll be using this Russell 2000 ETF IWM.

The Dow Transportation Index had another huge day gaining 2.3% on the day, creating another large open gap at Monday's opening bell. You can see that most gaps get filled eventually.

The year-to-date chart shows a similar bull flag to the one on the Russell 2000 chart, and it's also breaking out here as well, although the last one was a fake out.

The EFA (I-fund) keeps on keeping on and now it has run so far that it is approaching that long term rising resistance line. That's quite a run since it tested the long-term support line just last month.

AGG (Bonds / F-fund) was down as yields rallied again after the strong jobs report. Technically this bond ETF is sitting in an interesting position after having ignored that bear flag and rallied back above support last week. A gap was filled and it is now testing that support again, so is it ready to start rallying 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

Posted daily at TSP Talk - Market Commentary

The legal stuff: This information is for educational purposes only! This is not advice or a recommendation. We do not give investment advice. Do not act on this data. Do not buy, sell or trade the funds mentioned herein based on this information. We may trade these funds differently than discussed above. We use additional methods and strategies to determine fund positions.

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SPY (C Fund) (delayed)

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DWCPF (S Fund) (delayed)

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EFA (I Fund) (delayed)

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AGG (F Fund) (delayed)

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