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On the brink of a breakout

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Stocks opened lower on Friday as the losses in Amazon impacted the broader market - initially. But buyers stepped up right away taking not only the indices higher, but also Amazon turned a sharp decline into a modest 1.1% loss by the close. The Dow ended the day up 153-points, or +0.57%. The Transports led again, while the Nasdaq and the small caps also outperformed the S&P 500.

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Coming into Friday investors were a bit nervous after Amazon's disappointing earnings Thursday evening. It traded down sharply after hours on Thursday and then opened on Friday at the lows of the day, but buyers stepped in and we saw a large bounce after a successful test of the early October lows to start the day, and a close at the highs o the day. That set the tone for the rest of the day for the market on Friday.

The Semiconductor Index, which had pulled back after several failed breakout attempts over the last couple of weeks, finally made the move and blasted through the overhead resistance. That also helped the Nasdaq and small caps on the day. This move was particularly important since this has been one index that the non-trade deal had been putting pressure on.

We saw several indices test, or make, new highs late last week, and while new highs can bring about some profit taking, this market has been consolidating for nearly two years and that kind of pent up energy can ignite a strong move higher. Of course negative news headlines still have the ability to turn on the market, and the indices have had a habit of selling off after the more recent FOMC meetings, and we have one of those coming up on Thursday.

We also get the October jobs report this Friday so it will be a busy week with major earnings also being released from companies like Alphabet (Google) on Monday, and Apple and Facebook on Wednesday.

The S&P 500 (C-fund) tagged the old July high on Friday but couldn't quite get above it. We still have that open gap to worry about and those "F" flags do have a tendency to breakdown, but they can also continue to move higher a lot longer than you'd expect before they do break. It seems like a make or break week for stocks with the Fed's interest rate decision, major earnings, and the jobs report and there are good arguments for each side of that resistance line near 3030 to hold or break. I would be more surprised if we don't get a breakout only because of some of the charts that have already done so, but that open gap does keep some doubts in my mind.

The S-fund did have a mini-breakout - not to new highs - but above a major descending resistance line. The question is whether that successful test of the 1340 level earlier this month was a major low being cemented in.

The Transportation Index also hit a major resistance line but this is no longer a double top, but a triple top, which don't tend to be as tough to break. But this index has come a long way in October and while I doubt it will come all the way back down to the lows, we could see a pause here, unless the S&P 500 can breakout, in which case the Transport would likely do so in sympathy.

Here's a few major charts that have also made higher highs recently, above some tough resistance...

The Financial sector posted a healthy looking positive outside reversal day resulting in a breakout by Friday's close.

The EFA (I-fund) has been flirting with new highs and on Friday it closed for a third straight day above that early July high.

The High Yield Corporate Bond Fund has also closed above the recent highs for three straight days. While there has been some talk about potential cracks forming the credit market, this chart does not show any signs of that yet.

The AGG (bonds / F-fund) continues to hold onto some very important support at the rising support like and the 50-day EMA. It hasn't exactly bounced off that support so it is suspect here, but if it is going to hold and rebound, this is about where we'd expect it to start. I'm not so sure it can with that blue bear flag forming, but for some reason bonds tend to surprise me most when dealing with technical analysis. They seem to do the opposite of what I expect.

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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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