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Stocks sell off on Japan and Carl Ichan

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Stocks opened lower on Thursday after the Bank of Japan (BOJ) did not offer any new stimulus or cuts sending the Japanese Nikkei down over 3% on the day. Buyers stepped up in the U.S. market once again after the initial selling, but a comment from Carl Icahn regarding Apple and the market in general, gave investors a reason to go back to selling. The Dow closed down 211-points.

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A weaker than expected GDP of +0.5% didn't have much impact when announced before the opening. As a matter of fact, if you are only concerned about the Fed and a dovish monetary policy, then the weak economic growth may be a reason to be a buyer since it helps keep interest rates low.

After the bell Amazon posted a very strong earnings report so we saw a little pop in the futures, but Amazon is already a pricey stock and seeing it jump $70 a share after hours could trigger some profit taking before long. I use amazon.com quite a bit and so do millions of others so I understand the lure, but I do so at the expense of local retailers so it's possible that we could see weakness in other sectors who would normally sell what Amazon now sells - which is just about everything.

The S&P 500 (C-Fund) dipped below the short-term rising trading channel yesterday after the large rising wedge broke down earlier in the week. The 20-day EMA is being tested right now, and should that break a move to the 50-day EMA would seem probable. If Japan doesn't cause more strife Friday morning, then Amazon's earnings could give stocks a boost initially, and that's what the bulls will hang their hats on today. If the selling continues despite Amazon, the bullish case starts to wobble. That PMO indicator on the bottom is flashing a warning sign now that it is below its moving average.




The dip on Thursday found support at the 20-day EMA and the top of the open gap in the SPY. Whether you are bullish or bearish, it is better to have these gaps filled since they almost always do sooner or later, so we might as well get it out of the way.




The DWCPF (small caps / S-fund) fell from top of its recent trading channel for the first time in a few days, and the bottom of the very short-term narrow channel is being tested now. Should that break it seems a move to the 1005 area would be likely.




This chart is the one that is most concerning. The QQQ, or Nasdaq 100, closed all the way down below the 200-day EMA yesterday. That is clearly an important area in a bull market and the selling in some of the major Nasdaq stocks like Apple, Starbucks, and Netflix are being technically damaged. Yesterday earnings from Amazon could save it here, but it needs to climb back above the 200-day EMA within a few days or this is a breakdown, and there's not a lot of support below.




Over the last year, the three other times (red arrows) that the QQQ fell below the 200-day EMA, we saw some sharp declines.




The EFA (I-Fund) finished filling that first open gap and is now close to retesting the 200-day EMA, which you would expect to hold in a bull market. The problem is those two other gaps below are calling since gaps don't like to remain open.




Japan was one of the culprits for yesterday's selling as they were expecting more monetary policy assistance and got none. It is sitting on some important support right now, but there is an open gap in that wedge and if that does get filled, it would be a failed pennant breakout.




The AGG (Bonds / F-fund) bounced on the weakness in stocks, and that test of the recent highs could happen today. It would probably take a major sell off in stocks to see a breakout in the AGG today, so if it does breakout I'd be more likely to think that it happens next week.




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

Tom Crowley


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S&P500 (C Fund) (delayed)

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DWCPF (S Fund) (delayed)

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EFA (I Fund) (delayed)

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BND (F Fund) (delayed)

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