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Stocks shrug off big drop in price of oil

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It was a pre-holiday trading day on Friday and it played out as such with light volume and a fairly tight trading range. The Dow lost 59-points while the Nasdaq and the Transports were the only majors to post gains. The I-fund was the laggard with the dollar pushing higher again.

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The geopolitical atmosphere has been the catalyst of late with the on again, off again trade talks with China, and the prospective, yet far from certain, U.S. summit with North Korea.

In the meantime, the price of oil tanked on Friday having some, but surprisingly not much, impact on stocks.





It broke down from a rising wedge formation and the 4% decline pulled the index to the bottom of a rising parallel trading channel and the 50-day EMA. There's more support near $66 but if stocks were rallying on strength in oil, that may work against them now, although consumers could benefit in the coming weeks from lower gas prices, should this hold.





The S&P 500 / C-fund remains in a bull flag, but that is still within a large bear flag. For the last two weeks the index has traded sideways but I think the bull flag may give the bulls a slight edge because it's the first peak since the February correction that didn't head straight down. Instead it has consolidated creating that bull flag, but they must take advantage of it soon otherwise the bears will assert more pressure in these weaker summer months, and if this rally fails again, another test of the lows may not go as well for the bulls.




The S-fund has been sailing along but it too has run out of some steam recently and we've been talking about this head and shoulder pattern head test for a while, where some rallies go to die.




The Dow Transportation Index has been leading of late and it closed above the top of its trading channel for a second day in a row yesterday. But those little reversal tails can be telling so it needs to hold early this week or back into the range it will go.




The EAFE / I-fund has lagged recently as the dollar continues to make higher highs. It closed at its lowest level since early April after another failed attempt at a breakout earlier in the week.




The dollar continues to rally - gapping up again on Friday - and closed at its highest level in nearly a year.




The Volatility Index was up sharply on Friday but it is still in a downtrend and trading below the important 200-day EMA. As we saw in 2017 the VIX could comfortably trade below the 200-day EMA and below 10.0, which is unusual, so the question is whether it is heading back in that 2017 direction or if we'll stay within a more historically normal range closer to 15?




The AGG (Bonds / F-fund) rallied again on Friday and bonds, which were due for a relief rally, finally found some upside momentum. The problem is that it is still in a technical downtrend and facing some resistance to start the week, and we have another head and shoulders pattern testing the head, like the small caps chart up above.




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

Tom Crowley

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

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