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Stocks stopped the bleeding for a day picking up a healthy gain on Tuesday, but some late selling took the steam out of the bulls' run. The Dow, up over 360-points at one time, settled for a gain of 207-points and both the Dow and S&P added about 0.80% on the day. The Nasdaq, Transports, and small caps led with gains over 1%. President Trump tried to calm the trade concerns so we saw some dip buying, but there's work to be done.

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The trade tensions eased for a day and the Dow had its best day in a month, but the biggest rallies do tend to come on the heals of the larger declines. Trading volume wasn't that impressive so investors weren't exactly jumping over each other to get back in. But to be fair, the late selling was more of a fade than a rush for the exits.

The bulls have some work ahead of them as the bears waited patiently all day for a chance to sell yesterday, and they finally did some of that in the final hour of trading. These types of rallies are very vulnerable in markets that recently declined sharply, and the bears will sell the rallies. The bulls' job now is to continue to buy the dips and push the S&P 500 back over the 50-day EMA, which is the line in the sand for some bears. They are more willing to sell below it, than above it.




The S&P 500 is doing a good job of holding above the 100-day EMA however, an average I don't follow too closely, but perhaps I should start, as you'll see in the charts down below. It has been a great pivot point for the index over the last year.

Most of the things that went down on Monday were up on Tuesday, and what was up Monday, like gold and bonds - the safety trades - were down.

There's not a whole lot of catalysts out there right now as the market is lying in wait for the next trade tweet or headline. A lot of people got very bearish all of sudden - many of them who were exuberant about stocks just two weeks ago. It's hard to find a bullish story out there now, and that may be a good sign, although this market has needed a cleansing for a while. The question is, how much is enough?

I have talked about the market topping process for a while but rarely does anybody get instant gratification. So the bears, who are enthusiastic now, may get disappointed with further upside, but that upside may be an eventual trap so I want to stay very nimble and not get married to any position.

The futures moved higher after the bell yesterday but nothing significant, and in this volatile environment, it probably doesn't tell us much about what we'll see at the opening bell on Wednesday.

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The S&P 500 (C-fund) got a bounce off of two interesting levels - the 100-day EMA, which I addressed above, and that 2800 area that has been in play for over a year. This chart doesn't go back to that January / February 2018 correction, but 2800 was tested twice back then as well. So it looks like a pretty important make or break area. The indices are oversold and this bounce isn't too surprising, but many expect it to fail. The 50-day EMA is usually a warning sign but I say watch that 100-day average for a stronger tell.




The DWCPF (S-fund) led on the upside with a gain of about 1.3% yesterday, but that dwarfs the 3% loss it endured on Monday. Like I said, the bounce isn't a surprise after a decline like we saw, but how the bulls and bears react to this rebound is the question. Rather than the 100-day EMA, it's the 200-day EMA that is critical support for the small caps.




The Dow Transportation Index did manage to close back above its 200-day EMA, something it gave up on Monday, but the selling near the close shows the bulls weren't overly enthusiastic.




The EFA (I-fund) is in the same boat... the 200-day EMA was broken and it struggled to recapture it. The dollar was up so there was a headwind.




The AGG (Bonds / F-fund) is near the top of a rising trading channel but it has finally held above that March high for a couple of days. Yields were higher on most Treasuries yesterday so I'm not sure why the AGG saw a gain.




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

Tom Crowley


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