We had a little bit of everything last week.  It was a post-options expiration week, and a pre-holiday week.  Trading was whippy with relatively low trading volume, especially on Friday where it was the lowest trading volume day of the year.  Friday also happened to have a big rally that followed a negative outside reversal day.  Bond yields and the dollar were down, breaking the week's trend.  Now what? 

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Friday's action almost completely reversed Thursday's move in stocks, bonds, the dollar, but Thursday's move was one of those eye opening reversal days that had to get your attention -- the dreaded negative outside reversal day. 

Trading volume on the S&P 500 (C-fund) was up on that Thursday reversal, although nothing too noticeable.  The action was very similar to the negative outside reversal day in April, and that is concerning.  It was a breakout to new highs that ended at a 7-day low.  Then came Friday and, again like in April, we saw a quick snap-back rally.  And that rally was on lighter volume than the reversal day.  One key bullish note is that the sell off on Thursday did not break below the March highs so it could be another case of old resistance potentially becoming support.

This tells us nothing except that if history repeats itself, we have to be on the lookout for the start of something more sinister as outside reversal days can lead to major market reversals.  Stocks can battle their way out of it, but like in April, and like in late July of 2023, it took a couple of days of dealing with that reversal before the next shoe dropped.

         


I certainly have my antennae up for something bearish, but nothing is glaring in the longer term charts to suggest a bear market, but that takes time to develop if it's going to happen.  The "spinning top" formation last week on this weekly chart does suggest some indecision and that can be the start of a turning point, but we need more evidence, and we probably need to see this week's low fall below last week's and back into the rising trading channel before the bulls will back off.

     


The 10-year Treasury Yield has been bouncing off its lows, and that inflationary data on Thursday which helped trigger the outside reversal day in stocks, also pushed the 10-year above some resistance, so this could be a new trend, and not one the bulls will like.

        

The dollar was down on Friday but it too has gotten perky on the upside after holding at its 50-day EMA.

Perhaps those two charts above reversed course because of the tendency for pre-holiday reversals?  Could be, and if that's the case these will both come down this week.  If not, perhaps we do have new trends on the upside.

The Dow Transportation Index has had my attention as well as it has badly lagged the major indices.  It has been considered the market leader for more than a century, so when this is moving in the opposite direction from the Dow Jones Industrial Average, which made a new all-time high early last week, take note.  There is longer term support coming from of the October lows that might save this chart, so there's some hope here.  The 15,000 area seems to be crucial here.

          


This is a holiday shortened trading week that will end with more important inflation data in the PCE Pricing and Personal Spending and Income Reports on Friday.  We'll also see the Consumer Confidence Report today, and the second estimate of the Q1 GDP on Thursday.  So buckle up.  The market is churning and there's some potential for volatility to pick up this week.
 

DWCPF (S-fund) had a healthy rebound on Friday as well, but only gained about half of Thursday's losses.  It never did make a new high like the S&P 500, Nasdaq, and Dow did, but the recent lows did test and hold key support near 2020.  There is an open gap below 2000, which is quite a bit below that support.

The EFA (I-fund) also rebounded with that dollar falling and US stocks rallying.  The March highs held here as support like the chart of the S&P 500, and those are key support areas that must hold for the breakouts to stay confirmed.

           


BND (bonds / F-fund) rebounded off of its 20-day EMA and it needed to because it had fallen below some key support in the 71.70 area.  That's the area to watch here as this is now a resistance level.

        

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

Tom Crowley


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