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Early selloff gets bought again

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Stocks were near flat at the open but quickly plummeted after 3M and UPS reported weak earnings reports. The Dow lost 135-points, or -0.51%, but that was well off the morning lows as investors bought up those lows. The S&P 500 was flat, the Nasdaq led on the upside, while small caps and the Transports struggled. The dollar was up and bonds were down slightly.

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We saw some significant swings in early trading but it was 3M's disappointing earnings report that did most of the damage in the Dow, which was down nearly 300-points at the morning lows. The loss in 3M (-12.91%) was its worst one day decline for that company since the 1987 market crash. That's kind of surprising.

UPS (-8.13%) disappointed as well sending the Transportation Index tumbling

Microsoft (+3.31%) and Facebook (+5.85%) had big days so it is still big tech that is doing much of the lifting in this market, but that's part of the problem. We're actually seeing more new lows in the Nasdaq 100 than new highs recently, and despite yesterday's gains, there were more stocks down on the Nasdaq than were up so there's a negative divergence under the surface.

Amazon reported after the bell and the reaction was positive (up about 1.7% in after hours trading) but underwhelming considering the strong beat on the EPS side. Revenues were basically inline with expectations and that's not good enough sometimes in this big tech market environment, but their announcement of upcoming free one-day shipment seemed to get investors excited. These percent gains I am giving for after hours trading are snap-shot quotes since they are still trading while I write this.

Intel was down about 7% in early trading after the bell yesterday after they gave weak full-year guidance for earnings. So, the recently wobbling, but high flying, semiconductor index (down -1.81% yesterday), may take another hit today.

Starbucks and Ford were strong, but neither are market movers anymore.

So we have a mixed bag heading into today, but as we saw yesterday the dip buyers are still hanging around.

Also after the bell, President Trump told a group of children that China's President Xi would soon be visiting the Whitehouse, which sparked rumors of a possible trade deal announcement, but staffers would not confirm. This brings to mind how much this market has been able to rally despite now going more than a year without a trade deal. Kind of interesting.

The S&P 500 (C-fund) was down sharply early yesterday but managed to close well off the lows so the bears are not taking advantage of the weakness and are either using the weakness to cover short positions, or the bulls are just not done buying the dips. The after hours action was mixed with Amazon doing well, but other hiccups, as we mentioned above, that could put a little pressure on stocks again today.

This 18-month chart of the S&P 500 shows the 100-day moving average and currently the index is about 100-points above the average. There were some exceptions but 100-points is getting on the stretched side technically, and we could see that rubber band start to snap-back soon, but like we saw in January and December of 2018, it can get stretched even further, however when it does snap back, it can be quick.

The small caps (S-fund) had a bad day but they were down very sharply in early trading so the -0.64% loss was actually not bad. It closed above some key levels again after testing and holding at the rising support line.

The EFA (I-fund) was down slightly but more significantly it fell below the short-term rising support line, so that's a bit of a red flag.

The Dow Transportation Index was hit hard after UPS reported earnings yesterday. After breaking above that bear flag (red) earlier this month, there was an "F" flag (blue) rising trading channel working, but it failed yesterday.

The AGG (Bonds / F-fund) was fairly flat but with yields up there was more negative than positive on the day. We knew this could test the top of the flag again after the breakout the other day and there's an open gap that can increase gravity in the short-term. I would think that the 108.30 would be a good area of support here.

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Thanks for reading. Have a great weekend!

Tom Crowley

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