foxex: Break Out

Chart Advisor | Focus on the Price

By Gordon Scott, CMT

Thursday, December 12, 2019

1. Stocks break higher on strong volume

2. Investors leave safety behind to seek higher returns

3. Cisco share price makes new show of strength

Market Moves

Stocks rose strongly higher as a tweet from President Trump sparked traders into early buying and fund-driven investors followed closely behind. All major indexes closed higher today with the S&P 500 (SPX), the Nasdaq 100 (NDX), and the Dow Jones Industrial Average (DJX) all printing historic intraday highs. The Russell 2000 (RUT) small cap index and the Russell Microcap index (RUMIC) responded likewise and all indexes closed around one percent higher.

Even more interesting than the amount by which these indexes rose was that they did so on relatively strong volume. On the first day after the Federal Open Market Committee (FOMC) expressed confidence that employment, inflation and interest rate conditions would remain favorable for 2020, the market showed its enthusiastic outlook. This appears to be a bit of a change for investors who, since Thanksgiving, had been characterized by buying and selling equilibrium.

Investors Leave Safety Behind to Seek Higher Returns

The relatively higher volume of investors adding shares to their portfolio is not related to, and is perhaps largely explained by, the action in the bond markets today. The yield on the 10-year Treasury Note (TNX) rose by .11 (a nearly six percent rise) as bond traders were compelled to offer higher rates to attract investors.

Since bond prices move in an opposite manner compared to bond yields, it is not surprising that the price of iShares' 20-Year Treasury Bond Index ETF (TLT) fell by 1.65%, but it does explain in part where the money for new stock investment is coming from. By noticing this action on a day when stock indexes surge higher, astute chart watchers can see that a sizable number of investors are moving their investment selections from bonds to stocks. Given the late-in-the-year timing of such a move, it seems logical that these investors expect the move to continue into 2020.

Read more:

Investor Complacency Following Fed News

3 Ways JPMorgan Is Going 'Risk-On' in 2020

Micron Earnings: What to Look For

Cisco Share Price Makes New Show of Strength

The Dow Jones Industrial Average was the one index that failed to close at a historic high price, even though it still showed particular strength. Of the 30 components in the index, only three closed lower than the previous day's prices: Boeing (BA), Procter & Gamble (PG), and 3M Company (MMM). The twelve-week chart below compares the performance of these three stocks with the three best performers on the day, JP Morgan Chase (JPM), Dow Inc. (DOW), and Cisco Systems Inc. (CSCO).

While JPM and DOW would be expected to top this chart and bad-news-driven BA would be expected to lag, the interesting exception on this chart is the performance of CSCO. Shares of the networking giant have lagged but now show a sudden surge that suggests this move may continue as the stock plays catch up among its peers.

The Bottom Line

Stocks closed significantly higher on the day after the release of the FOMC statement, sparked by the President's tweets. As stocks rose, bond prices fell, suggesting that investors have, and may continue, to move some of their money away from safer havens to more opportunistic positions. Among stocks that caught the intention of investors, CSCO shares showed an unusual turnaround compared to recent weeks.