Stocks opened slightly lower on Wednesday and were holding up just below the flat line until about midday when a negative trade headline hit the wire, and stocks pulled back sharply. We saw losses of near 1% at the lows but by late afternoon we saw dip buyers show up and take back about half of that trade triggered decline. The Dow ended the day down a modest 0.40%, with similar percentage losses in the other major indices.
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The on again, off again trade fiasco has been driving this market for almost two years now. Good news, bad news, rallies and sell-offs, all noise and since the peak in January of 2018, when the first trade headlines started coming out, the S&P 500 is up less than 8% over those two years.
Now the news is that the "phase 1" of the trade deal with China, the thing that triggered a big rally last week, may not be finalized this year. There are still differences between the two counties on the amount of tariffs being put on certain items. Of course we want to know what is going on but sometimes you wish they'd just stop talking about it until something is actually done. As a market timer, I like the volatility, but it is so random and perhaps inaccurate at times and it makes it tough on everybody.
Things could have been worse for stocks yesterday but the price of oil, which looked ripe for a breakdown on Tuesday, bounced back Wednesday on a lower than expected inventory report. While oil is one of the economically sensitive trading vehicles, it is still supply and demand that will trigger price movement, and the low supply number is what yesterday's rally was about. It did close just below the 200-day EMA so it is still a little vulnerable.
We talked about the yield on the 10-year Treasury yesterday, sitting on some key support, but also at the bottom of a bear flag. Well, that flag broke down yesterday and at least initially this looks bearish for yields, which means it could be bullish for bonds and the F-fund should the breakdown in yields hold - since bond prices go up as yields go down.
The impeachment hearings still don't seem to be having an impact on the market, but who knows how long it will go on? The FISA Abuse report I mentioned the other day is apparently not going to be released until December now. It could be a market mover, but then again, Wall Street seems to be ignoring most of the D.C. politics.
The S&P 500 (C-fund) fell hard midday on Wednesday, but it filled the open gap from last Friday, hit the rising support line of the narrow rising trading channel, and bounced. That channel is getting a bit extended and won't go on forever so I am a little surprised that it held. It will eventually break, but when? These types of narrow ranges can end with a thud when they do break, so be careful.
The S-fund hit another multi-month high early on Wednesday before the trade headline reversed things. It turned into a spinning top candlestick formation, which is one of indecision and can come at market turning points. Momentum is obviously still upward, but we are getting several warning signs now.
The Dow Transportation Index did not bounce back with the rest of the major indices, instead it closed near the lows of the day. It also filled its open gap (blue) from earlier this month and the rising support line is broken, so it may be looking to test the 50-day EMA next.
The EFA (I-fund) was down sharply and this chart had already broken it rising trading channel several days ago. It was quite extended and perhaps needs to pullback some before any end of year rally can resume.
The AGG (bonds (F-fund) rallied and broke above what we were calling a bull flag recently. The yield on the 10-year Treasury broke down from its bear flag, as we mentioned above. Now the top of that flag could act as support on any pullback in the AGG.
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