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Stocks stall awaiting trade deal deadline

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Some very late selling turned a positive day into a negative one for most indices, although the Dow did hang onto a 2-point gain despite tanking over 120-points in the final half hour of trading. The small caps and Nasdaq lagged again, but most of the major indices reversed after some negative news from Intel was released.

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A revenue guidance warnings from Intel late yesterday may have been the culprit for the late selling, as the stock plummeted below the 200-day EMA on the news. That news flipped the semiconductor and Nasdaq indices over, and the rest of the market fell in sympathy.




Obviously the uncertainty about the trade negotiations was a factor as we get closer to Friday's midnight deadline when 25% tariffs will kick in, but is it the whole story? We've been expecting some kind of pullback from a market that had run a long way this year and hit a double top.

The VIX shows that the complacency from investors turned into an anticipation of more volatility in the short-term, and that makes put buying / insurance more expensive in the option market as the trade deadline nears. The longer-term VIX readings aren't as negative so it's probably mostly about the trade deal right now.




The charts are in an interesting position with the action deteriorating after a failed breakout, but with some testing testing their 50-day EMA's which do tend to hold in bull markets. The problem is, when they don't hold, the downside can be swift. It's a bit of a coin toss at this point both technically, and headlines-wise as far as trade news goes. A 500 point move in the Dow could be in the cards, but we may need the coin to determine the direction.




The S&P 500 (C-fund) sold off late yesterday creating another reversal day, this one a negative reversal, but so far that 50-day EMA has held as the lows. It held in March as well and that turned out to be a good buying opportunity. The problem is, when the 50-day EMA does break, it tends to open the flood gates and investors could run for the exits. The rising wedge formation broke down, as they tend to do, but the bottom of that parallel channel (red dashed line) has held so far.




The DWCPF (S-fund) ended the day with a disappointing loss after early gains were given up, but it too is still above its 50-day EMA.




The EFA (I-fund) was up slightly and because we had such a late sell-off in the U.S. stocks, the I-fund may have some moderate gains (the Wednesday prices haven't been posted yet as I write this.) You can see, however, that the 50-day EMA was broken on this chart, and that turned out to be the highs in the EFA yesterday.



The dollar has been quiet in this interesting week for stocks. It's nearing an apex and that tells me that a bigger move is coming soon. The pennant formation is a bullish one, but we'll see which way it breaks. Currency traders may be quietly waiting for the outcome of the trade deal deadline before acting.




The AGG (Bonds / F-fund) was down and for a third time it tried to move above the March highs and failed. If there is no trade deal and the tariffs move to 25%, I suspect yields will drop further and bonds will rally. Sitting on that breakout line tells us the bond traders are also unsure which was this deal is going to go.




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

Tom Crowley



Posted daily at www.tsptalk.com/comments.php

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S&P500 (C Fund) (delayed)

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DWCPF (S Fund) (delayed)

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EFA (I Fund) (delayed)

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BND (F Fund) (delayed)

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