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Rally off the lows continues on light volume

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Stocks bounced back, after Friday's modest losses, and the Dow closed up 213-points on the day, which was almost a relief rally following nerves heading into the weekend. The indices did close off the highs, but it's been rather quiet with light volume out there which may be signaling a bit of uncertainty from investors.
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We've seen a decent rebound off the recent lows, which has been a successful test of the February corrections lows, but investors seem a little tentative to jump back in because trading volume has been quite light, so the rally is being driven more by a slow transition from fear to acceptance of the lows being made.

At some point we would want to see a high volume rally to let us know that the big money is embracing this rebound. It's taking a little longer than normal to do so, so until then, it's a slightly negative sign.

Some decent earnings after the bell yesterday sent the futures up modestly so we're on pace for a higher open on Tuesday morning, barring any other events.

The S&P 500 / C-fund pushed above the 50-day EMA at the highs on Monday, but some late selling saw it close back below the average. There is an open gap near 2710 and I suspect it should get filled if the 50-day EMA doesn't prove impenetrable. The rising wedge formation could be troubling, but it could also last longer than we might expect, and eventually that descending resistance line may come into play and make things a little tougher, giving the market another test.

The small caps / S-fund look good as they closed back above the 50-day EMA and led the large caps on the upside with a 0.87% gain, and the hopes for a "V" bottom remain intact.

The Dow Transportation Index had a big day gaining 2.3%. It basically filled its open gap above 10,600 and is now testing the top of that strange megaphone pattern.

The EAFE Index / I-fund move up again and remains above any major resistance. The weakness in the dollar yesterday helped.

The dollar was down and it continues to trade in the range of 23.1 to 23.8. It may seem like a wide range looking at this chart, but...

... when we pull back you can see how tight that range in the dollar has actually been in 2018.

A quick look at the German DAX is back above the 50-day EMA for the first time in almost 3 months, but still just below the 200-day EMA, and this could be a key for the I-fund going forward.

The AGG (bonds / F-fund) was up slightly and remains in that rising trading channel that we have been watching. We suspect the 200-day EMA could prove too much for bonds in this rising rates environment.

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

Tom Crowley

Posted daily at
TSP Talk - Market Commentary

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