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Stocks bounce back quickly from Tuesday's sell-off

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Stocks rallied on Wednesday, reversing Tuesday's losses. The Dow gained 237-points and we saw 1% gains in several of the major indices with some closing at their highest levels in about a month. A weak dollar, higher long-term bond yields, some calming in the Hong Kong protests, and the Fed Beige Book may have helped push things higher yesterday.

Daily TSP Funds Return

The 2 / 10 year Treasury yields did some uninverting -- or is it reverting, maybe steepening -- yesterday? Whatever it's called, the 2-year yield is now back under the yield of the 10-year. However, the 3-month yield is still very much inverted over the 10-year.




Trading volume remains relatively light being so close to the holiday with extended summer vacations still winding down. Because of that, the action, whether up or down, may be a little difficult to trust. If we do see a breakout above the recent consolidation trading range (as you'll see in the S&P 500 chart) the bulls will want to see volume increase as a sign that big money is involved in the buying.




Investors have been burned several times over the last month buying up here at the top of the range in the S&P 500, but ironically it may be price that stimulates volume from the FOMO (fear of missing out) investors, if we see a mini-breakout in the coming days.

So now the S&P is at a dangerous, make or break point, where it has broken down repeatedly in August, but a breakout above that flag formation probably does mean we'll get another attempt at new highs, and it could be a rally into the September 18 Fed rate cut. But from there, who knows? I'm not sure we are getting a green light for stocks until we see a resolution in the trade deal. That could take a while and I don't look that far down the road.

The fact that gold, silver, bonds, and many other "safety plays" are all rallying too, tells me that investors may not want to get too complacent with any short-term rally in stocks. Be nimble.
The August Jobs report comes out this Friday and estimates are looking for a gain of 145,000 - 165,000 jobs, and an unemployment rate of 3.7%.


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The S&P 500 (C-fund) rallied over 1% on Wednesday, and it was the first trading day since late July where the S&P 500 traded above the 50-day EMA for the entire day. The bear flag is still intact but it is taking forever to resolve itself so you have to wonder if the bears will be capable of breaking this down, as bear flags tend to do. A meaningful breakout above 2940 could negate the flag.




The S-fund rallied 1% but technically it is still struggling below several key areas. The large caps are leading the way, but does that mean if stocks start to rally, the small caps have more room to move up?




The EFA (I-fund) made an impressive gap up move above both the 50 and 200-day moving averages yesterday. It had already broken a descending flag-like formation and appears to be in a new short-term rising trading channel.




The price of oil rallied over 4% yesterday giving the market a boost, and while it is still trading below that key 200-day EMA, the short-term action shows a possible bull flag getting ready to breakout. So we have some possible positive catalysts going forward, but I can't see much further than this month's FOMC meeting on the 17th and 18th.




Even with the dollar rallying to new highs recently, the normally greenback sensitive metals have been rallying strongly, which makes the argument that a run for safe plays is a warnings sign for stocks.





The High Yield Corporate Bond Fund was up modestly but it closed at a key level - above the old peaks, where the bulls would want to see some support. So, the credit market is still OK despite some wobbling in August.




AGG (bonds) was up but so were the longer tem bond yields so the F-fund price may not be as accommodating to those in the bond fund. We'll see. The day's prices haven't been posted yet as of this writing.




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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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SPY (C Fund) (delayed)

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

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

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

(Stockcharts.com Real-time)