Gap filled in S&P. Do we need to see a test of the lows?

Stocks had another wild Wednesday yesterday as stocks opened sharply higher once again, but the selling started almost immediately taking a 200+ point gain in the Dow to a 300-point loss at the day's lows. There was a big afternoon rally from about 2 PM ET until 3 PM that took the Dow up 300-points off those lows and nearly into positive territory, but it started to fade again in the last hour of trading. The losses weren't terrible, but more demoralizing to the bulls who can't seem to get any rallies to lately.

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]Comments by Maxine Waters, the next House of Representatives Financial Services Committee Chairperson, sent the financial stocks reeling again. Basically she said she and the committee will re-regulate the banks, undoing much of what President Trump has done. Of course the Democrats only control the House and not the Senate or the White House so it was probably more of a knee-jerk reaction from the financials, than anything too concerning for them.

The XLF Financial ETF ended the day off the lows, but with a 1.35% loss, about twice that of the other indices. It also left that large gap by 26.00 still open.

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The S&P 500 / C-fund moved down sharply yesterday to fill in that open gap near 2685, and from there it got a decent bounce, but still closed with a 0.76% loss. We're at day #3 below the 200-day EMA and what everyone wants to know is whether we can get back above it before we test the late October lows. I still say a test of the lows would be a good clean way to end this correction, but now that the open gap has been filled, I suppose there's a chance that the worst is behind us. The other option of course is a failure of a test of the lows, but something tells me the Fed will pull the reigns on rate hikes if that happens and stocks will get a jolt. But then there's tariffs and that may or may not get resolved soon.

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The DWCPF (S-fund) filled its open gap and continues to lag having not reached its 200-day EMA since early October.

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The Dow Transpiration Index is actually holding up a little better. The inverted head and shoulders formation is still intact and trying to hold that right shoulder. But it is still below the 50 and 200-day EMAs, where it failed earlier this month.

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The EAFE Index / I-fund is just an ugly chart right now but if there's anything good to say about it, it is that it is beaten up pretty badly this year and may be due for some relief. But it will likely need some help from the dollar which has been too strong for the I-fund to withstand.

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The yield on the 10-year Treasury briefly fell below the 50-day EMA again, but managed to close back above it. We got the double top pullback and the pullback we've seen may be enough, but with oil falling precipitously, we could see yields continue to decline as we talked about yesterday.

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The AGG (bonds / F-fund) was up slightly yesterday and it did manage to close above that descending resistance line for a second straight day. The 50-day EMA has been trouble for the AGG over the last couple of months since the breakdown in September, and it is back testing it again. If it can move back above it, it would likely be because of that oil correlation.

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

Tom Crowley


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