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Early weakness doesn't discourage dip buyers

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Stocks opened sharply lower on Tuesday and moved sideways to slightly higher for most of the morning before an early afternoon spike gave the indices a modest gain for the day. The Dow, down 180-points at the lows, reversed to close up 39-points. Investors still seem a bit tentative because of the big swings, and because there is concern that this relief rally may not hold.
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Volume was light and it was rather quiet which could be a sign that the easy money off the lows may have already been made, and could get a little tougher from here.

Bonds were flat and the I-fund was down with the U.S. stocks rallying after the overseas markets had already closed.

The S&P 500 / C-fund posted an inside day, meaning yesterday's high and low were within Monday's high and low. We see a possible bear flag with the thin red lines, but that could also be a negative "F" flag (thick red lines), although yesterday's high did move above that flag so that may not be a solid formation.

The High Yield Corporate Bonds did not rally yesterday and struggled at the 200-day EMA. Instead it made a slightly lower low / lower high on the day. That's a possible problem.

The EAFE Index / I-fund was down on the day but could be owned some fair value because of the late rally in U.S. stocks yesterday. One small gap was filled (blue) and there are three large open gaps still overhead.

The German DAX is one of the European markets that looks like a troubled chart. This is the kind of "F" flag that I thought we may be seeing the S&P 500 chart above. This one fell below the 200-day EMA, then failed after an attempted rally back up to it. If this downtrend continues I would assume the rest of Europe will take notice and take the I-fund down with it.

The dollar was down for a second day after a relief rally to start February, and the longer-term downtrend continues.

The AGG (bonds / F-fund) still hasn't been able to do much off the recent lows as yields stay stubbornly high. It's interesting that we got the relief rally in stocks without some kind of relief in the bond market. If you recall, many were calling the weakening bond the reason for the sell-off in stocks.

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

Tom Crowley

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