TSP Talk Blog

Stocks opened the day on Wednesday with more selling but they caught a bid about 30 minutes after the opening bell and we saw a steady rally for the rest of the day. The Dow gained 163-points, getting back all of Tuesday's gains, while most indices took back a smaller majority of those gains before all was said and done. Some positive comments about the China trade negotiations helped, and it was an impressive rally, but the charts are still vulnerable without some additional follow-through.

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Sell the rumor, buy the news seemed to be the theme of the day on Wednesday. After selling off on Tuesday and into Wednesday morning on the news of a possible inappropriate or, some say illegal conversation between President Trump and the president of the Ukraine, Speaker Pelosi announced an impeachment inquiry would be initiated but once the transcripts of that conversation was released, stocks bottomed and the rally started.

As I read in a CNBC article, Wall Street seems to think that Trump is "safe", but they opined that an impeachment inquiry could mire trade initiatives with China, and possibly the USMCA trade deal with Mexico and Canada, which would be a problem. But then again the Russia Special Counsel went on for years, and while there was no concrete trade deal made, the stock market continued to rally on the optimism that a deal will eventually be done. However, I would expect the Chinese to use this to leverage their position and even though their economy is suffering in the face of this trade war, they are patient enough to possibly wait out to see what kind of impact this impeachment talk has on Trump's reelection chances.

So the volatility that we have come to expect during this time of year, is upon us. After trade, interest rates, and inverted yield curves, we can add an impeachment inquiry to the list of market moving headlines going forward.

As far as the charts go, the rally yesterday was bullish, but it has to follow-through because only the Dow recaptured all of Tuesday's losses yesterday, so the recent descending trends are still intact. Momentum has shifted toward the bulls for the short-term after the bounce off the 50-day EMA in the case of the S&P 500, Russell 2000, and the Transports.

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The S&P 500 (C-fund) initially headed down after the bell yesterday, hit the 50-day EMA during a morning sell-off and bounced with authority to grab back much of Tuesday's losses. The gap hasn't been filled and it would be a surprise to me if the open gap and the top of the old flag (blue) don't get tested before we attempt any rally toward the old highs again. Of course there are a lot of folks expecting that, and the market doesn't usually like to make it easy on speculators.




The S-fund had broken down from the bull flag on Tuesday, but yesterday's rally puts it back in there. As I mentioned before the Russell 2000's bull flag looked more like a peak than a flag, so the DWCPF is a little more vulnerable than this chart might depict.




And here is that chart of the Russell 2000 and you can see that the "bull flag" isn't a great looking flag because of its steepness, but the breakdown on Tuesday and recovery on Wednesday does give the bulls some hope that it could turn into a bullish flag. Like the S&P 500, the 50-day EMA was the hero here again yesterday with it holding for two straight days.




The EFA (I-fund) was down on the day and the dollar was up sharply, and that turned out to be bad news. We have a possible bull flag forming so the bulls still have a case here.




AGG (bonds) got slammed yesterday as the dollar and yields rallied. I'm not sure what to make of this right now. It looks like that resistance near 113 is holding after the failed breakout, but it also closed above the 20-day EMA again so it's tough to get too bearish on bonds right now.




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

Tom Crowley


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