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Stocks rallied again in this very choppy environment. The Dow gained 240-points and every sector in the S&P 500 was positive. At this point investors may be looking for some follow-through, whether that's on the upside, or the downside, because it is easy not to trust any particular day's action.

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There was some midday volatility after the release of the FOMC meeting minutes when the Fed reiterated their "mid-cycle adjustment" comment, but the indices battled back some from that dip and actually after the bell the S&P 500 futures moved up about 8+ points to close at the highs of the day, as did the Russell 2000 futures, so we have an early positive bias for Thursday's open.
The 2/10 year Yield Curve inverted briefly again yesterday, and that has everyone nervous, although stocks barely blinked, so perhaps the inversion is less about an imminent recession, and more about an historic demand for U.S. bonds with many European and Japanese Bonds paying negative returns?

Moreover, despite these yield curve inversion scares, retail may be coming to life and that's a decent sign for the economy. Target (TGT) had its best day ever yesterday, rallying 20% and moving well into new all-time high territory after posting earnings. Nordstrom (JWN) was up 11% on the day and after the bell after they releasing earnings. Nordstrom is not in the same boat as Target as it has been beaten down all year where Target is at those all-time highs, but both impressed investors. Lowe's was also up 10% yesterday after earnings, and Home Depot's stock raced to all-time highs this week after posting their earnings earlier this week.

Here a 10-year chart of Target and the incredible move it had yesterday...




And the retail sector itself is again making an attempt to move above the 50-day EMA. It succeeded in June after failing in May.



I've been skeptical of the need for rate cuts and these retail numbers perhaps show that consumers is still alive and well. Perhaps the Fed will give us more info on the state of the economy at this week's Jackson Hole symposium.

The index charts are in interesting positions, pushing this relief rally up to overhead resistance lines. Until they break there isn't enough conviction being shown by the bulls nor the bears to give us a clue which way this wants to resolve itself. Yesterday's rally could fail today, just like Tuesday's sell-off erased much of Monday's gains. But if overhead resistance gets taken out, you may see more of a rush to get in. If the 200-day EMA fails on the downside again, the masses may start moving toward the exit. Trading volume has been very light this week, and getting lighter, and perhaps investors are in a wait and see mode.

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The S&P 500 (C-fund) recaptured Tuesday's losses by rallying 0.82%, but it fell 1-point short of the key 50-day EMA. Those red lines may be representing some kind of large bear flag, but it may be too large, and I'm more concerned about those 3 EMA's and whether they are holding as support and / or resistance, and each of them have done a good job of holding recently, but that keeps it in a trading range. Something is eventually going to give and that's what we are all betting on... whether it breaks above, or fails, at resistance, or hold or fails at key support levels. Sitting near the top of the range, in a choppy market it would be the bears' turn to push this down, but the bulls may try to put up a fight. Trading volume has been evaporating as the summer draws near an end.




The S-fund moved back above the 200-day EMA and held slightly above it at the close. That's the good news. The bad news is, the last two times it did that, the following day was a bear-fest.




The EFA (I-fund) was up meaningfully but closed off the highs, although the action was good enough to break it to the upside of that flag-like pattern. It was almost a bull flag on a bear flag pole. "Oscar" from LiveWithOscar.com calls them "F" flags.




The High Yield Corporate Bond Fund had a big day and is actually testing the recent highs again. The 100-day EMA held three times now since that low in June. New highs would probably tell the world that the credit market is just fine, and I doubt stocks would be in any trouble if that was the case, so keep watching this one.




AGG (F-fund / bonds) was down on the day as yields rallied - not surprisingly taking stocks up with them (yields go up when bond prices fall). There was a bit of a negative reversal here, but I assume bond traders are waiting to hear from the Fed this week before we get another big move.




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

Tom Crowley


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