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The Cohn sell-off didn't pack much punch

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Stocks opened sharply lower after the news of Gary Cohn resigning as top Economic Advisor to the president. As we talked about yesterday, those smash down futures prices don't always translate into a big loss for the stock indices, especially by the close. The Dow was down about 350-points at the lows, but it closed with a more respectable 83-point loss, while the other indices were mixed. Small caps outperformed again.
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The new tariffs may be signed by the President as early as this morning, but the market seems fine with it now - at least that's the way the dip buyers are thinking - and that may be because of some concessions made when it comes to trade with Canada and Mexico.

The S&P 500 has been trading in a range from 2575 to about 2775 but in the process we may be seeing a major bear flag forming. That may be the key - whether this is just a trading range that investors want to trade in while they digest all of the new information that has been thrown at them over the last few months, or if that range is a negative looking flag that is setting up investors to get a little too comfortable before the next shoe drops. I wish I knew the answer, but at least we can see the possibilities develop on the charts and get prepared and not be blindsided when they do breakout or breakdown.

We seem to be in a neutral zone of sorts on the charts, but a case can be made for either direction at this point. If the mini-bear flags breakdown, we'll probably be setting up for a more major breakdown. If the bear flags turn into more of "V" bottom low, then the upside will get the advantage. We'll just have to wait and see. Also, watch which side of the 50-day moving averages the S&P wants to trade on.

We get the January Jobs Report on Friday morning and estimates are looking for a gain of 210,000 jobs and an unemployment rate of 4.0%. They would be impressive numbers if hit, but investors and the Fed seem more concerned with the wage numbers at this point.


The S&P 500 / C-fund chart is telling an interesting story. It is trading above its 50-day EMA, but below the 50-day SMA. It has created a small bear flag (blue), but it has has also now made a higher high and a higher low. Unfortunately, coming off that correction, that is the definition of a bear flag, and it's a big one (red).




The small caps / S-fund continues to outperform and at this point is seems to be the tariffs helping them as the large caps may be feeling more pressure from their propensity to be more export driven.




The Dow Transportation Index has some serious technical issues as it trades below both 50 day averages and is stuck in two bear flags - a major one, and a short term flag that will be the initial test.




The EAFE Index / I-fund has open gaps on both the up and down sides so anything can happen in the short-tern to remedy that, but it may have already had its test of the lows, especially if the dollar is rolling over again. That doesn't mean it can't go down again, but I would think we'd see the dollar move up again before that happens.




The Dow isn't an index I usually watch except to get that daily up / down point reading to put a number on the day's action. There are only 30 stocks in the Dow Industrials but take a look at the moving averages and the bear flags. It sure seems like it wants to move lower to test those prior lows, but it is not giving much satisfaction - frustrating both the bulls and the bears at this point. The bulls want to see it move above the averages, and the bears want that test of the lows.




The AGG (bonds / F-fund) remains in a bear flag keeping bonds in a tough spot.




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

Tom Crowley


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