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Oil spoils early rally in stocks

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Stocks were mixed yesterday as the Nasdaq and small caps ended the day with moderate gains while the Dow suffered its second straight triple digit loss (-119) with IBM accounting for half of those losses. The S&P 500 had opened sharply higher on the day, but the weight of IBM and the drop in oil prices was too much for the large cap index.

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Stocks failed to hold onto some strong early gains and that may have had a lot to do with the price of oil sinking after a higher than expected inventory report.

You can see what has been happening to the energy stocks this year and that has put pressure on the large cap indices.

The Transportation Index was up nicely, but it too failed to hold some larger early gains. However, after the bell railroad company CSX Corporation posted strong earnings and that could help put the wind at the back of the Transports today.

Also after the bell some strong earnings from American Express and could help the large caps.

Yesterday after the bell Secretary of State Tillerson warned that an "Unchecked" Iran could go the way of North Korea. Anytime there is unrest in the Middle East the price of oil tends to stabilize so we'll see.

With all of this selling going on recently it feels like the market is trouble, but when we step back we see that the indices are only about 1% to 3% off their all-time highs. For that reason there appears to be a bid under stocks that won't let them breakdown... at least not yet, anyway.

The SPY (S&P 500 / C-fund) rallied early up to and above the 20-day EMA before the price of oil rolled over and everything reversed. Technically, the SPY closed above the 50-day EMA for a third straight day, which is good, but only by 0.07 so it is flirting with another breakdown. 233 looks to be an important level on the downside.

The DWCPF (S-fund) rallied but it too closed well off the early highs yesterday, which was the theme of the day. 1190 and about 1178 are the keys to watch outside of the 50-day EMA, which it closed above for the first time in 5 days, by the way.

The Dow Transportation Index closed with a solid gain and looked to want to break to the upside of a bear flag, which is not common, but that breakout failed thanks to the weakness in oil. But as I mentioned above, we saw some strong earnings from CSX Corp after the bell yesterday and that could help today.

The EFA (I-fund) tried to fill that small overhead open gap but pulled back before it could complete the task. The 50-day EMA is still holding so we don't want to get too bearish on this yet, but the rising channel is broke and that's a warning sign, and as we showed yesterday, the top three holdings in the I-fund, Japan, England, and Germany, have been under-performing lately.

The High Yield Corporate Bond Fund broke to the upside of a bull flag early yesterday, but like everything else, it failed to hold and is right back in the flag. That looked like it was going to be a good sign for stocks, but here it is back in the flag and we'll have to see if the bull flag can hold.

The AGG (Bonds / F-fund) was down slightly and seems to have run a long way in a short amount of time. There is evidence that investors are getting a little too bullish on bonds now and that can mean they have may need a break.

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

Tom Crowley

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S&P 500 (C Fund)
DWCPF (S Fund)
Dow Jones U.S. Completion Total Stock Market Index (^DWCPF)
EFA (I Fund)
iShares MSCI EAFE Index (EFA)
AGG (F Fund)
iShares Lehman Aggregate Bond (AGG)