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Big positive reversal, but where was the volume?

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It was another wild ride on Wall Street Thursday as stocks opened sharply lower and we saw losses near 800-points again for the Dow, after losing 800 on Tuesday. But the downside pressure was like a rubber band that was ready to snap back, and that's what it did, and the 785-point morning loss in the Dow was nearly erased and it closed down just 79-points. Volume was up but not what you might expect on a reversal day like that.

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The Fed, the trade war, the Chinese arrest of a CFO, the UK Brexit situation, you name it - the market was trying to deal with it all and there was some form of a capitulation, but as I mention, it would have been more bullish had the volume been higher. Because of that I do have some concerns about whether that was the low, but a reversal like that tends to follow through with some upside the next day.

The problem with that is we get the November jobs report comes out on Friday morning before the opening bell. Estimates are looking for a gain of 189,000 jobs, and unemployment rate of 3.7%, and average hourly earnings going up 0.3%. If there are any negative surprises, that could change the follow-through plan. Or, of course, the jobs report could help trigger some upside follow-through.

The late rally was huge but all it did was fill the open gap created at the opening bell Thursday. So, there's a chance that the top of that gap, which was Tuesday's low, could act as resistance. But again, the jobs report may be the deciding factor.

Bonds have been quite interesting with its big rally since the lows in early November, but on this weekly chart (each candlestick represents a week of action) you can see that a long-term resistance line going back to the summer of 2017 was tested, and so far has held on a closing basis, which may be triggering a peak in this recent rally in bonds.

The S&P 500 / C-fund opened sharply lower on Thursday, opening another big gap as shown on the chart, but it was filled already with that strong close. We got a big positive kangaroo tail reversal off the bottom of that bear flag that we have been watching, but notice that the volume was not much higher than what we saw the prior three days. Not that it has to be very high, but that tends to be what happens when you get a reversal like we just had. There's can be a mad rush for the exits early, but then another rush to buy in the afternoon on the rebound, and that tends to elevate trading volume.

The DWCPF (S-fund) had the same story - bear flag bottom tested, but rebound, and the gap got filled.

The Transportation Index may be the tell in the next day or so. It had fallen back below some key support and here it is now, after yesterday's rally, testing the bottom of its bearish looking flag support line. Those two arrows show the levels that are key.

Most of the charts will show us the same story - the I-fund, the High Yield Corporate Bonds, etc. basically we're at a point where stocks should see some relief, but if they don't rebound soon off this reversal, I wouldn't be surprised if we saw another leg down coming.

The AGG (F-fund) rallied again, but as I showed above, it is hitting some longer term resistance in the weekly chart which could make it tough for bonds and the F-fund to continue to rally. If you were looking to get a mortgage, refinance, etc., I think you should be looking to lock in an interest rate right about now. Yields may start up again into the end of the year.

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Thanks for reading. Have a great weekend!

Tom Crowley

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  1. bmneveu's Avatar
    Noticed the triple bottom on the DWCPF in Coolhand's thread and you have it pegged here. That should be a bullish signal for the next couple weeks, which is a little early but possibly time-coincident with Santa coming to town. Merry Christmas!

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