We got a little bit of everything on Wednesday but in the end, nothing really happened. Stocks opened lower, reversed sharply higher, came back to break-even, and that's about where it ended. The Dow gained 14-points and many indices closed near the flat line. The small caps led on the upside and the I-fund and Transports lagged.
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The I-fund continues to be a day behind the U.S. indices and it paid back what it owed from Tuesday. Bonds (F-fund) were flat but they gave up some early gains.
The SPY (S&P 500 / C-fund) has now closed for 5 straight days below the 50-day EMA and that is an official "uh, oh" in my book. The open gap, which is rare on the S&P 500, is the one hope I see for an excuse to have it move back above it, and the indicators are oversold enough to trigger a relief rally. It's just a matter of how much relief a rally can give now that it is becoming entrenched below the 50-day EMA. It has formed a small falling wedge pattern, which tend to break to the upside, and I do expect it to break to the upside. But again, how high can a rally go with the chart breaking down like it is? I'd like to at least see 194 (50 EMA) to 196 (open gap).
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
The small caps of the Russell 2000 led the way yesterday with a 0.36% gain. The bear flag (blue) is very obvious and they tend to break down, but we saw a similar bottom in May and the bulls are hoping this chart negotiates the technical trouble in a similar fashion. It moved back above the 200-day EMA intraday for a second straight day, but both times it could not close above it.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
The Wilshire 4500 (S-fund) is holding up slightly better than the Russell 2000 but it is still in a technical downtrend and created a bear flag. The S-funders are also hoping it also resolves itself like the bear flag in May.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
While the small cap indices peaked on July 1, the Dow Transportation Index held up well into July but have since fallen precipitously. The decline has created a steep fallen wedge, which tend to break to the upside, but it has closed below the 50-day EMA for 5 straight days so I am concerned about the strength of any relief rally.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
The AGG (Bonds) posted a negative reversal day yesterday after another failed attempt to breakout to the upside. This chart looks like it really wants to breakout, but it continues to balk at the opportunity despite stocks selling off, which seems like a good enough reason to breakout. Maybe it is trying to tell us something?
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
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Thanks for reading! We'll see you back here tomorrow.
Tom Crowley
Posted daily at TSP Talk Market Commentary
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