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A rally, but it faded

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Stocks closed higher on Monday but by the close the story seemed more focused on the weak afternoon action, than the gains. The Dow ended the day up 16-points, well off the +74-point high before noon.


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The broader indices saw modest gains, and the Russell 2000 and Transportation Index closed with fairly strong gains, although still well off their highs. The concern for me was where the reversal started yesterday, and if you missed Monday's commentary, you may want to take a peak to see why the 50-day EMA is a very important level for the U.S. indices right now. (Premium members will find Monday's full report in the premium area.)

The SPY (S&P 500 / C-fund) blasted through the 50-day EMA in early trading, but by the close it fell below it again. Yesterday's strong open also opened a new small gap that, after the negative reversal, looks primed to get filled. But the question is, once it is filled, will that act as support and keep the rebound going?


Chart provided courtesy of www.stockcharts.com
, analysis by TSP Talk

The low volume is a good news, bad news situation. When stocks rally on light volume it means the big money wasn't buying, and that is a yellow flag. But since we had a reversal on the light volume, that takes a little sting out of the negative reversal.

The Nasdaq 100 also closed off its highs but this chart is the best looking one out of most of the major U.S. stock market indices.


Chart provided courtesy of www.stockcharts.com
, analysis by TSP Talk


The Russell 2000 (small caps) did gain nearly 1% on Monday, but it hit that 50-day EMA and filled an open gap, then came right back down after it had been up close to 2% earlier in the day, and that created the negative reversal day. On the bullish side, the descending trading channel was broken to the upside.



Chart provided courtesy of www.stockcharts.com
, analysis by TSP Talk


The Wilshire 4500 (S-fund) also found resistance at the 50-day EMA and it is still stuck in its descending trading channel. This chart needs another positive day or two or it risks heading back toward the bottom of that channel.


Chart provided courtesy of www.stockcharts.com
, analysis by TSP Talk


The Transportation Index was having a big day, but like everything else, it ran out of steam
and closed well off the highs. The 0.79% gain was welcomed and it did manage to close above the 50-day EMA, but it must hold.


Chart provided courtesy of www.stockcharts.com
, analysis by TSP Talk


We saw big rebounds in the European and Japanese stock markets so the EAFE had a good day. The good news here is that the EFA closed back above the200-day EMA. If that can hold, the I-fund could have seen its lows. But it is still in the neighborhood and really needs to hold. There are a couple of large open gaps above that may need to get filled.


Chart provided courtesy of www.stockcharts.com
, analysis by TSP Talk


Bonds rallied but reversed down again and for a second straight day the AGG closed right on the resistance line we have been watching.


Chart provided courtesy of www.stockcharts.com
, analysis by TSP Talk



Read more in today's TSP Talk Plus Report. We post more charts, indicators and analysis, plus discuss the Sentiment Survey Results and its 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: www.tsptalk.com/plus.php

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

Tom Crowley



Posted daily at www.tsptalk.com/comments.html

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