Stocks went on a rollercoaster ride on Monday, in front of a 2-day FOMC meeting. The Dow was up 120-points during early trading before completely falling apart by early afternoon, with some indices racking up losses near 2% before an afternoon rally saw stocks roar back. The Dow closed up 87-points, while the broader indices were mixed.
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With stocks closing in positively territory for six consecutive Tuesdays, and the Fed's 2-day FOMC meeting kicking off today (with a policy statement coming tomorrow afternoon), it may not be surprising that investors did a little buying late Monday. Moreover, anyone short the market (betting against it) may be covering their positions, which has the same effect as buying. However you slice, it was a bullish reversal day, although not all indices were treated equally.
The SPY (S&P 500 / C-fund) hit the 50-day EMA about 1:30 PM ET yesterday, and it held and reversed sharply from there creating a positive reversal day. The kangaroo tails often create at least some short-term follow-through, and many times a strong rally begins.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
The Russell 2000 hit its 200-day EMA and also did the reversal thing, although it was not able to completely regain the earlier losses, which were quite severe at the lows of the day. These EMAs are like magic. They either produce strong support and generate reversals, or if they break, could trigger a new longer-term change in trend. Yesterday we saw the reversals.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
Like the Russell 2000, the Nasdaq has been lagging and in a short-term downtrend since the March highs. The good news is, both of these charts (above and below) show possible higher lows after the big reversals. That is a good sign, although a new uptrend won't be official until we see a higher high, and in the case of the QQQ below, that would mean a move over 88 and that descending resistance line.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
May is not one of the better months of the year, although it does have a history of starting off well, and ending well. After 3 very nice days to start the month, the market starts the weaker 6-month stretch of the year, and that goes through October. Not every year is created equally as some summers do well, but on average they don't. Going back many years, most of the markets gains have come during the months of November through April, while May through October haven't done much better than break even.
Chart provided courtesy of www.sentimentrader.com, analysis by TSP Talk
Bonds were down and the TLT looks like it is creating a rising wedge, which is bearish and tends to break down. The IEF is back in the middle of its trading range with no signs of which way it wants to break, although if the TLT breaks down, I suspect the IE will follow - along with our F-fund.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
Yesterday's action gave us a reason for a little optimism, at least for the short-term. Apparently there are still buyers out there willing to buy at key support levels. But volatility is elevating and geopolitical events are still a concern for the market. It could be a case of who wants to be the last one out the door when profit taking kicks in, so we'll have to see if yesterday's reversal sticks.
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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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