The Friday break higher continued into Monday with not even a pullback. Futures gapped higher early morning and held that same range to the open. The buoyancy was attributed to relatively new Fed chair Powell and his statements on rate hikes that were considered benign. Given he gives his first son of Humphrey-Hawkins testimony starting Tuesday, stock buyers decided to get a head start on the testimony.
Now a gap higher in futures that holds in a flat range to the open can be a problem. It can give sellers a chance to take shots at the upside, and they did take some shots in the first hour. The indices, however, never threatened to roll over. Indeed, the selling effort dried up at the end of hour one and after that it was all upside for stocks and they closed out the session at session highs. Volume even edged higher on NYSE, but then again, it was so low on Friday that it really made no difference.
SP500 32.30, 1.16%
NASDAQ 84.07, 1.15%
DJ30 399.28, 1.58%
SP400 0.56%
RUTX 0.65%
SOX 2.16%
NASDAQ 100 1.34%
VOLUME: NYSE +11%, NASDAQ -0.5%. Trade improved on the upside for NYSE, an overall better indication, but volume was so low already . . . NASDAQ volume was flat below average yet again, the fifth straight session of clearly below average trade.
ADVANCE/DECLINE: NYSE 2:1, NASDAQ 1.9:1. As you can see from the percentage gains on the indices, it was more a large cap session with RUTX and SP400 both well below 1% in the gains while the other indices were easily above 1%.
CHARTS
The second leg in the relief rally that began Friday continued Monday. Decent breadth, still weak volume, but plenty of stocks moving. The neat thing is many that were clobbered in the selling, rebounded, put in a good test, and started back up. They of course are joined by stocks already in good position and with good patterns. Thus, the relief move has kicked off a second leg, showing great resilience and indeed putting NASDAQ and SOX approaching the prior highs.
DJ30 and SOX were impressively strong, both the market leaders and both gapping and rallying hard. SOX is already nearing the January high, obliterating the November peak and any thoughts of a head and shoulders top. DJ30 is still a long way off the prior high, but it moved through the lower gap zone and easily motored through the 61% Fibonacci retracement. 26,000 looks like a serious resistance test, but thus far the Dow is solid.
NASDAQ gapped and rallied nicely, gapping through the 78% Fibonacci retracement and now just 85 points off the January all-time high. SP500 through the lower gap formed during the selling, continued hard through the 61% Fibonacci retracement, and is 18 points form the 78% retracement. Still room to work higher.
The small and midcaps were up but were obvious laggards on the session. RUTX did manage to clear the intraday highs in the lateral consolidation, adding to the solid price move Friday. That pushed RUTX past the 61% retracement as well as the November high and December consolidation.
SP400 gapped and rallied past the consolidation highs, but stopped just shy of the 50 day SMA and 61% Fibonacci retracement. Lagging, but following.
We picked up several positions while letting current positions run. With a renewed break higher and still room to run in the indices, that is the play. How many more upside session is the key; depends upon how fast the indices run. Another day like Monday and NASDAQ is at the prior high. It could easily half or third that move and have 2-3 more upside sessions. Not counting the reversal session it had four upside moves on the first leg of the rebound. If that is the measure, at least in terms of sessions, it is halfway there.
That begs the question do you continue picking up new positions as they set up and break higher? While I may feel pretty confident that the move is still just a relief move, I am not the market. History and probabilities are on the side of the move running out of gas and falling rather precipitously to test the prior low. But those are probabilities not certainties, and history is made anew every time the process plays out. If I knew when tops were to occur without fail, I would still have the entire AMZN and NFLX positions. Since no one knows, we took some gain but also, because we don't know, continued to let part of the position work. Now it is somewhat disconcerting that Dennis Gartmann closed his short positions; he has been on the wrong side of stock and oil trades so much the past year that when he made a definitive move it often marked the ending of the move against him.
Still, if the patterns are good and the moves are good, then the market is telling you the upside is still acting as it should, i.e. good patterns producing good moves. No reversing breakouts and the like keeps the confidence in the upside move. Therefore we will still look at new positions because it could be this time the market defies history and the probabilities and just keeps on running on comfort the bond yields are not going too high, the tax reform will produce investment and better earnings, and indeed the economy will boom as it usually does when a period of high taxation, high regulation, and high malaise is replaced with growth policies.
Have a great evening!
Jon Johnson, Chief Market Strategist
InvestmentHouse.com
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