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Momentum on bulls' side but resistance is nigh

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Stocks had another strong day on Tuesday and the Dow ended the day up 127-points. It had been up closer to 200-points in early trading so there was a bit of a late fade, but the 0.50% gain led the major indices. The broader S&P 500 and Nasdaq indices gained about 0.3% each, with small caps doing slightly better, while the I-fund led after a dip in the dollar.

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The bulls have had the momentum and momentum is tough to reverse at times, but one thing that can halt it is a double top, which we are close to hitting in a few indices. The late weakness yesterday produced some negative reversals that could mean a short term dip is due, but there is still some room before the S&P actually hits the January high - if it needs to get there first. The small caps chart hit the highs again yesterday before dipping into the close (that chart is down below).

Earnings continue to come in and most have been very good, and even better then the already high expectations, so the bears have not had a good time of it trying to sell the news. At this point it's the geopolitical headlines and rising interest rates that the bears expect to eventually halt things, but looking at the charts, it will more likely be technical decline, even if they blame the headlines.

The S&P 500 / C-fund gapped up and moved very close to the top of that rising trading channel. As you can see, stocks don't go straight up - they go up, then dip down. I don't know what will happen next but using this chart pattern, I can guess.

The small caps (S-fund) poked their head into new high territory again yesterday and you can see how much resistance has been there. There is a much better case here for a breakout, more so than the S&P 500, because it passed its January highs back in late May and its working on a shorter-term double, triple and quadruple top, which are much more rare. But, the open gap and negative reversal yesterday probably means a little short-term weakness at some point today.

The EAFE (I-fund) had a big day as the dollar took a break from its recent rally. But, it is still below the key moving averages so it still has a lot of work to do before this gets bullish.

The Financials saw a major false breakout and reversal yesterday that will almost certainly produce some weakness today. Where it will be a week from now, I don't know, but that type of reversal almost always produces some movement in the direction of the reversal.

The AGG (bonds / F-fund) gave back much of the gains from the prior two days and the short term descending channel held on the top side. It closed back below the 200-day EMA.

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

Tom Crowley

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