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Stocks bounce back but Wed., but futures point to more downside

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Stocks rallied on Wednesday but it was whipsaw kind of day as trade dominated the headlines. The Dow ended the day up a healthy 182-points, but a late push lower on news that China has lowered their expectation on a deal, took the indices off their highs of the day. We saw gains of near 1% in many of the broader markets, although small caps lagged slightly again.

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We saw some gains to start the day but it felt like traders were tentative given the volatility recently. The trade headlines kept coming and going and while we didn't recapture all of Tuesday's losses, it was meaningful push by the bulls to take the S&P 500 off the recent trading range lows, and a little closer to the top of the range.

While writing this commentary at about 6:20 PM ET, I was watching the futures start to tank and basically all of Wednesday's gains had disappeared. Yup, it's trade stuff again. The headline is, "Chinese media reports that US and China have made no progress in trade talks." I thought the meetings didn't start until today, but obviously something is upsetting the market. Yawn. It's an hour by hour thing now, I guess.

Update: 11:00 PM ET Wednesday night: That was fast. The futures have already recovered a 35-point loss in the S&P 500 and they are down just a couple of points. It really is an hour by hour thing.

I posted this chart in the "Plus" premium area of the forum yesterday during trading hours so it doesn't show the closing prices, but you can see that the 100-day EMA is back in the picture, but what's interesting is that back in August, each time the S&P stalled at the 100-day EMA on the way up, it gapped above it the next day. So, that's something to keep an eye on, but also consider that the 50-day EMA was a lot tougher to cross back then as it held for nearly the entire month. Of course the futures being down over 1% Wednesday night makes this seem a little silly, although the next headline could change everything again.

The stock market is open on Monday but it is Columbus Day and a Federal holiday so the TSP will not be open nor will they process transactions. Transactions that would have been processed Monday night (October 14) will be processed Tuesday night (October 15), at Tuesday's closing share prices.

The S&P 500 (C-fund) gapped up on Wednesday although it's not the classic open gap that we normally talk about. But you can see that the index closed on Tuesday at 2893 and yesterday's low was 2907 so that's a 14 point open gap that may need to get filled. There's also an open gap up near 2935 so there is still a lot of reason to believe that the volatility is going to continue, and with the futures dropping hard on Wednesday evening, that fill may be happening at the open. So, it's a buy low (200-day EMA), sell high (50-day EMA) kind of market until support or resistance breaks.

The S-fund is still flirting with 4+ month lows but so far the August lows are holding on this pullback. If we do get a breakdown here, it may come after we see a right shoulder form up toward 1395 where the left shoulder peaked,

The Russell 2000 small cap index has been lagging badly of late, and while we have that head and shoulder pattern in the DWCPF S-fund chart above, the Russell has actually been forming what looks like a huge bull flag. Interesting. With the 90-day / 10-year yield curve still inverted and predicting a recession in the coming 6 - 20 months, it would be interesting if this bull flag broke out, as bull flags tend to do, in the interim.

The EFA (I-fund) had a decent day but like U.S. stocks it is still wallowing near the 50 and 200-day EMA's. If anything this could be a bear flag forming, similar to the breakdown in August.

AGG (bonds) was down slightly and is starting to get squeezed between the double top and the top of that old rising trading channel. If the stock index futures stay down and stocks open sharply lower on Thursday, we could see a breakout above the double top here.

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

Tom Crowley

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SPY (C Fund) (delayed)

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DWCPF (S Fund) (delayed)

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EFA (I Fund) (delayed)

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AGG (F Fund) (delayed)

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