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Late selling spoils early rally

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Tuesday was not a typical pre-holiday, pre-Independence Day kind of a trading day. It was early on but we have seen a series of intraday reversals that have been whipsawing traders lately. Volume was very light on the shortened trading day, the lightest trading volume of the year so far, so it wasn't any kind of panic selling. The Dow was down 132-points on Tuesday, erasing a triple digit morning gain.

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As good as Monday was, as far as being a typical pre-holiday trading day with its positive reversal, Tuesday was that bad with its negative reversal. It seemed like some bad news from Tesla helped send the Nasdaq down and that triggered broader selling in the other indices. The small caps closed slightly higher on the day, but they were having a very big day until that last hour of trading.

The pre / post holiday reversal theory gets a little interesting now because the action before the holiday tends to be reversed after the holiday, and now that we've had selling before the holiday, does that mean the strength comes afterward?

Chart provided courtesy of

I know I've been saying that positive seasonality surrounding Independence Day is one of the few times each year that I consider seasonality a primary indicator, so I was surprised by Tuesday's weakness as much as anybody, but of course even on the best historical days, July 3rd is positive about 70% of the time, and the trading day prior to July 4th (not always the 3rd because of weekends) is up about 64% of the time, which is some of the best of the year. But that means they are down 30% to 36% of the time resepectively, and that's what happened this year.

Chart provided courtesy of

We get the June Jobs Report this coming Friday and estimates are looking for a gain of 195,000 jobs and an unemployment rate of 3.8%.

The S&P 500 / C-fund may be forming the right shoulder of a head and shoulder pattern, and that shoulder does resemble a bear flag, so technical analysis may need seasonality to help this chart since the next couple of weeks are historically quite good. The current consolidation low does look similar to the one in early April so if you are a believer in repeating patterns, that is a bright spot.

The small caps (S-fund) chart has more of a bear flag feel to it, but it too is possibly repeating the formations we saw during earlier lows this year. It remains above the 50-day EMA and that is key for now.

The Dow Jones Transportation Index pulled back to test the 200-day EMA again but it has now closed above it for 3 straight days. That EMA has held very firmly in recent months.

The EAFE Index (I-fund) filled one of the open gaps that we talked about in our last commentary, although it opened up a smaller gap on Tuesday, down below 66.50. The ideal technical play here would be to see a fill of the gap near 67.75 to test the 200-day EMA, and even possibly filling the gap near 68.25 where the 50-day EMA is currently. From there, I don't know because this chart is not a looking all that good overall.

The AGG (Bonds / F-fund) pushed above the 200-ay EMA on Tuesday and this one could be holiday related. The prior close above the 200-day EMA came on the day after Memorial Day, and that was quickly taken down again in the days following.

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

Tom Crowley

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