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Stocks rebound strongly, but bear flags still persist

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Stocks opened higher on Tuesday and for the first time in a while, we saw the indices just remain buoyant all day and close near the highs with the bears barely making an effort. The Dow gained 197-points while the S&P, Nasdaq, and particularly the small caps all had strong rallies grabbing back Monday's losses. Bond yields were up so bond prices came down a bit.

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There was a lack of negative trade news, but instead an ease on trade restrictions for China's tech giant Huawei, and that was enough of an excuse for stocks to rally in this back and forth market, which has kept both the bulls and the bears from getting too comfortable recently. The stocks that looked like they were done on Monday, like semiconductor stocks or Apple, did well on Tuesday.

It has been a bit of a slog for stocks in May but the indices are consolidating from the big rally of early 2019. After a down day it feels very negative out there, and after a positive day like yesterday, if feels very optimistic. But we should remember that, until yesterday the S&P 500 had given up all of April's gains, was trading at mid-March levels, and also below the levels it hit in January and September of 2018, or 16 months ago. So it's a choppy market that has been in a large range for a long time, but a more narrow range more recently. The question is whether this is a long topping formation, as I have suggested, or a long consolidation that is preceding a true breakout. So far we've had two failed breaks - the first was in that peak in September / October of 2018, and the most recent came last month in April.




The Volatility Index had spiked up earlier this month but yesterday it fell back below the 200-day EMA, which is a bullish sign for stocks, but it is also testing some rising support, so we'll see if this VIX gets a bounce off that support today, or if investors are ready to go back to their no fear attitude.




Nordstrom was down 8-9% afterhours, and that's not a good sign for the recently beaten down retail sector, which closed below the 50-day EMA for a 6th time in the last 7 days, and Nordstrom's results may keep it below there today.




Administrative Note: TommyIV has been working on a new page to consolidate some of the retirement information that is on our site. There's links to several articles and conversations that have taken place in the forum on the subject that we thought might be helpful... https://www.tsptalk.com/retirement/



The S&P 500 (C-fund) gapped up. It's one of those gaps that we don't see very clearly on the chart, but it closed on Monday at 2840, and the low on Tuesday was 2854, so that's a 14-point gap that may need to be filled. It's still in a bear flag and yesterday's rally only took it back into the middle of the flag, although it did close back above the 50-day EMA. There is some descending resistance at that blue dash line, but that's not a very strong trendline yet.




The DWCPF (S-fund) fell out of a bear flag on Monday and on Tuesday it rallied strongly back to the bottom of that flag. That 1400 area, or just below, may be some tough resistance with the 50-day EMA meeting the bottom of the flag and a descending resistance line. So far the 200-day EMA has held up on each test. I'm not sure I'd want to be around if there's another test, so it needs to keep moving higher to avoid that.




The price of copper and lumber, two economically sensitive commodities, have been falling steadily for weeks, in the case of copper, and for months in lumber. The rally in the dollar has something to do with it, but there may be something a little more economically related here.




The EFA (I-fund) was up nicely as it floats within a bear flag. It looks like a bear flag but a similar pattern actually broke strongly to the upside back in early April.




The AGG (Bonds / F-fund) was down slightly on the day as it seems to be drifting toward that support area near 108.65.




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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)

(Stockcharts.com Real-time)
DWCPF (S Fund) (delayed)

(Stockcharts.com Real-time)
EFA (I Fund) (delayed)

(Stockcharts.com Real-time)
BND (F Fund) (delayed)

(Stockcharts.com Real-time)

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