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Stocks opened lower on Monday but buyers stepped up immediately, and then we got a lot of chopping around until the last hour of trading when the bulls took over and posted a decent gain, filling in some of Friday's open gaps on the charts. The Dow gained almost 200-points while the broader indices gained about 0.7% each or so on the day. Is this the fake out rally like we saw before last week's CPI report? Bonds were down as the 10-year yield ticked up to a new high.

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After a loss of more than 200 S&P 500 points last week following the CPI reports, stocks experience a relief rally on Monday, following Friday's positive reversal as the indicators got very oversold in the short-term. That's no surprise but I am skeptical as we know the market tries to get us all leaning the wrong way - usually right before a big move in the other direction.

Remember the rally leading up to last Tuesday's CPI report? How did that work out for those who got caught up in it? Now, with the two day FOMC meeting starting today, and tomorrow's 2 PM announcement on interest rates and press conference afterward, we see the indices heading back up again. Maybe the Fed will do or say something that will send stocks higher, but we're in a bear market and the only good news that I think the Fed could give is that they have sufficiently killed the economy enough to slow down their rate hikes. As I've said before, the economy hasn't really felt the impact of the earlier rate hikes, although FedEx's warning last week may be the canary in the coal mine.



The 10-year Treasury Yield moved to a new high and a level not seen since 2011. The new high does not negate the possibility of a double top pullback yet. I'll give it a few days, and like the rally in stocks before the Fed meeting, this could be trying to get us leaning the wrong way in yields before the Fed speaks on Wednesday.


The Transportation Index had a big rally yesterday after Friday's sell off. The sell off did leave a big open gap and that will draw some attention, but the larger picture looks like a very bearish head and shoulders pattern.




Remember the "As goes Apple, so goes the market" commentary? I was watching the 155 area where the 200-day EMA was holding as support at the time. Right after I posted that the stock rallied up to 165, hit resistance and rolled over again and eventually ended up back below 155 and the 200-day EMA. Now it has rallied back up to that important area so this is quite a pivot point for Apple and, as goes Apple...




Trading volume was very light again yesterday, less than half of Friday's expiration trading. So no bear market bottom capitulation yet and no spike in the VIX to suggest there's enough fear in the market to support a low, so maybe a rally into the Fed is just another trap?

The two day FOMC meeting starts today and then tomorrow at about 2 PM ET we should hear the Fed's decision on interest rates. Target rate probabilities remained at an 82% chance of a 0.75% rate hike, and an 18% chance of a full 1.0% increase.

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The S&P 500 (C-fund) had a second consecutive positive reversal day yesterday although volume dried back up on Monday. A small gap that was opened on Friday did get filled. It's difficult to look at this chart and see a lot of bullishness although there is some room for more short term upside. The Fed will likely prove me right or wrong and by the end of the week we could be below all the support and 3900, or maybe back up near resistance and the 4050 area. Or maybe both if the action gets whippy. Buckle up!




The DWCPF (S-fund / small caps) found support and rebounded off the lows yesterday, and it looks to be on its way to fill an open gap near 1675. There is room above here as well so perhaps we'll get more upside in the coming days, but overall the chart formation isn't that bullish and that's why traders continue to sell the rallies.




The EFA (I-fund) was down testing the neckline of its large head and shoulders pattern before bouncing back and closing with a moderate gain. There's overhead gaps and room above, yada, yada, yada, but head and shoulders patterns do tend to eventually break down, especially in a bear market.




BND (bonds / F-fund) was down modestly and the trend remains down as it nears the June lows. Will it breakdown before filling those two open gaps above? Will it break down now that the 10-year Treasury yield is making an 11 year high? There's a good fundamental argument for a reversal here, but the technical's have to behave.




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

Tom Crowley




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