Stocks posted a big positive reversal day yesterday as the volatility continued on Wall Street. The Dow, down nearly 300-points early on Thursday, rally back to close up 209-points. The broader indices performed even better with gains over 1% in many including a 1.7% gain in the Nasdaq, a 1.5% gain for the Transports, and a 1.3% gain for our small cap fund.
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An unconfirmed report from the Financial Times came out around 1:15 PM ET saying U.S. Trade Representative Robert Leithauser said addition tariffs on China were on hold until after the G-20 meeting, and that's about when stocks ignited on Thursday.
CNBC said they could not confirm that and later Leithauser's office walked his statements back a bit so if it turns out to be untrue we could see everything flip right back over, but it seems like the market is just waiting for some good news, and the fact that the intraday rally was not sold for once, was a good sign.
The two main concerns for the market right now have to do with uncertainty. Uncertain if the Fed's tightening of interest rates is going to overshoot and negatively impact the economy. And uncertainty about the Chinese tariffs which make it tough for companies and analysts to come up with accurate earnings estimates for next year.
So when we get a whiff of some possible answer like the rumor from Robert Leithauser, it gives investors something to sink their teeth into and feel better about buying.
Seasonality is rarely a primary indicator but Thanksgiving week, the day before and after Thanksgiving Day, is one of the more reliable ones.
Chart provided courtesy of www.sentimentrader.com
Those two days are not up every year of course, and I've done some research in the past that showed that the Friday after Thanksgiving can sometimes move counter to whatever happened on Wednesday. If Wednesday was up, Friday had a tendency to be down. If Wednesday was down, Friday would be up. Again, not every time, but often enough to take notice.
A disappointing earnings report from chip giant Nvidia was sending tech stocks and the Nasdaq futures lower in overnight trading, and Nordstrom is down hard hurting the retail sector after their earnings were released. This adds a little heaviness to yesterday's positive reversal.
The S&P 500 / C-fund had a big day on Thursday but it basically traded within the full range of it short-term descending trading channel. It will need to move higher today (Friday) to escape that resistance. The gap was filled on Wednesday so the positive reversal sets up a good opportunity for the bulls to do just that. With the holiday next week some relief may be in sight, but there has been damage done to the charts and this whole bottoming process of this correction may not be over yet. Earnings may put some pressure on prices early.
The DWCPF (S-fund) also reversed and closed at some descending resistance. A test of the lows is typical behavior in these types of corrections, but it doesn't have to go straight down.
The Dow Transpiration Index has been acting the strongest over the last week or so but it is still struggling to get above the 50 and 200-day EMAs. That may be a bull flag so perhaps the bulls will finally make an attempt that can overcome those obstacles. That would be a good sign for the market in general, but before the bulls can declare victory, it must breakout.
The EAFE Index / I-fund lagged a bit with the dollar rallying again, but the late rally in U.S. stocks may help them today.
The price of oil rose for a 2nd straight day after the 12-day losing streak, and it is still in the spotlight since the downtrend is very much intact. We all like lower oil and gas prices, as long as the price drop is not a result of a weakening economy.
The High Yield Corporate Bonds were getting hit hard on Thursday morning but it hit a double dose of support and reversed with the stock market. This one has a been a tough one to keep down and as long as the credit market stays relative healthy, the stock market should have a cushion under it. If we do get a test of the lows in the S&P 500 it will be interesting to see what is happens to HYG.
The AGG (bonds / F-fund) rallied nicely as yields continue to dip, perhaps following those lower oil prices as we've talked about. The 50-day EMA is being tested now and the last two times it was tested the AGG fell back down so we'll find out soon enough if this rally in bonds this week was just a temporary bounce. For some reason the TSP gave us a negative price for the F-fund.
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