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Rally failure, or just a day a rest?

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Stocks ended their 3-day winning streak on another Turnaround Tuesday. We came into the day with more pressure in the market leading FANG stocks after the government reiterated their desire to initiate an antitrust / monopoly investigation on the big tech companies. But the real story was bond yields falling again, and traders have been following the yields almost every day lately, and it was a good excuse to take some profits after the 3-day rally.

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The selling intensified late so it was a follow the leader rush for the exits by the close. The Dow lost 173-points and we saw about 3/4 of a percent come off many indices on the day.

So, after Monday's big rally, getting some backing and filling in the indices, particularly when there were gaps opened, is normal action, but yesterday's losses may have been a little more than the bulls would feel comfortable about. A 0.25% dip, no problem. But the S&P 500 dropped closer to 0.80% and that's not typical backing and filling.

The 50-day EMA held as resistance yet again, and that's a concern. There is some support in the 2880 - 2897 area, just below yesterday's lows, where the bulls may need to make a stand, or risk another trip down to the 200-day EMA, which has held three times, and a forth may be too much to ask.

Investor sentiment had come off its extreme bearish levels after the three day rally, so perhaps this is just a shakeout of the weaker bulls. But strong bulls or weak bulls, the bears are just waiting for another opportunity to push things lower.

The S&P 500 (C-fund) is doing a little churning and burning above the 200-day EMA it it can be nerve-wracking, especially with the index below the 50-day EMA. Plus, that possible bear flag has formed, which is bearish, although at this point it's an odd looking bear flag so I'm not totally worried about it, but I also don't want to completely dismiss it yet. Yesterday's dip tried to fill the open gap from Monday, and it nearly did, but the 100-day EMA and the old descending resistance line held for now, although it was very late action that tested it. We could see another test today, and don't forget about that other open gap near 2860.

The year-to-date chart shows the 200-day EMA holding up and this churning above it is fine. It's a breakdown below it that would start a new wave of concern, although the breakdown scare in late May was a false alarm. Just as important, the 50-day EMA is holding as resistance and it will be the bulls' job to take that out, obviously if there's any hope of a move back toward the old highs.

The S-fund pulled back with that open gap luring it, as they tend to do. It failed again to overtake the 200-day EMA, which it has closed below for 6 of the last 7 trading days. I don't like the looks of these failures. You can see the decline in late May led to an easy recapture of the 200-day EMA once it started to rally. Not this time.

The Dow Transportation Index also pulled back in an attempt to fill an open gap, and the old resistance line near 10,000 is trying to hold, but it is a sharply descending line. Even if the bulls can push this higher in the coming days, it has been pinned below the 200-day EMA all month, and it's not a good looking long-term chart if we stretched this out to the peak in September of 2018.

The EFA (I-fund) held up after a dip in the dollar. It did fill its open gap yesterday and it will be an interesting test to see if it can continue hold there.

This isn't something I want to post each day, but China's Shanghai Index beat the bear flag so far, and actually broke to the upside. I thought it was noteworthy considering how bad it looked the other day.

AGG (F-fund / bonds) rallied sharply after holding again at the top of the rising channel. Yields fell again, and while that move may be getting extreme, the trend is down while bond prices have a strong uptrend. Trying to pick a top here has not been working for a long time.

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

Tom Crowley

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  1. userque's Avatar
    [QUOTE][COLOR=#000000][FONT=Arial]This isn't something I want to post each day,...[/QUOTE]

    Why not?

    Quit being fearful of those folks, post what's relevant. And ever since the trade wars began, China's Index is relevant.

    It's real easy to do easy stuff. I greatly respect those that can do hard stuff.

    [/FONT][/COLOR][I][COLOR=#0000ff][FONT=comic sans ms]“Blind party loyalty will be our downfall. We must follow the truth wherever it leads.” [/FONT][/COLOR][/I]
    [I][COLOR=#0000ff][FONT=comic sans ms]― DaShanne Stokes[/FONT][/COLOR][/I]

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