Another decent gap to the upside this morning. Yesterday saw a much larger gap.
“STOCKS REBOUND AS TRADE FEARS EBB!” That’s the type of headline we are seeing this morning. There always has to be a reason. But yesterday, Mnuchin stated they are going forward with tariffs. Yes, there were rumors we were negotiating with China but we are always negotiating with China. So what happened yesterday? Frankly we really do not care much but:
The Dow HAD already dropped from 25,800 to 23509 in the latest leg to the downside. The S&P HAD already dropped from 2801 to 2585 in the latest leg to the downside. The NASDAQ HAD already dropped from 7637 to 6992 in the latest leg to the downside. We do make note that the drop for the NASDAQ/NDX came from yearly highs. Drops like that do lead to vicious bounces.
We are treating yesterday as something akin to February 9th when after a nauseating drop, the market experienced a massive high volume reversal, leading to a few weeks of upside which led to this latest drop…only this one is much more important.
It is much more important because intermediate-term corrections often put in lows on the 2nd time down. It is much more important because a bunch of important areas tagged LONGER-TERM areas of support/moving averages. It is much more important because a break of those LONGER-TERM areas of support/moving averages…and then we talk something much worse than what we have already seen.
So take a look at :
The S&P 500 tagging for the 2nd time, the longer term 200 day moving average and bouncing off it it…again almost to the penny just like February 9th.
The DOW getting very close to the lows of Feb 9th and bouncing…possibly putting in what in technical terms is called a “double bottom!” This simply means price revisited the last low and rallied off of it again. Many other areas and indices did the same.
The strongest area (the SOX) rallied back above the 50 day average still showing great relative strength versus everything else.
The FINANCIALS (XLF) dropped down to $26.77. The low February 9th? $26.76.
We told you over the weekend that we were headed into the “end-of-quarter window dressing” period into a holiday-shortened week. We suspected a bounce. Backs to the wall, we would have guessed a few hundred Dow points after 1400 points to the downside last week. Those few hundred points were fulfilled on a gap and now suspect there is more upside testing.
But words to the wise. There has been a lot of technical damage. It is the mark-up period. There is a clear lack of leadership. But as long as the weekend’s lows hold, we are good. But if those longer-term support areas give way, we expect the big money to give way but for this week, highly doubt it happens.
Been following you for years and as always great commentary on the markets. Your Bull and Bear piece the other day, you hit the nail on the head. Keep up the good work!
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