A Near Term Low
Friday appears to be another near term low in the market. The bears emerged victorious last week as the market traced out a series of ominous technical signs. On a weekly basis, the market opened higher and closed lower which is known as a negative reversal. Additionally, the weekly range (high and low) eclipsed the prior week’s range which is known as an outside reversal. Finally, the Dow Industrials and the benchmark S&P 500 both sliced and closed below their respective 50 DMA lines which is not a healthy sign. Fundamentally, the environment still remains bullish which means that the market can still rally after it pauses to digest the recent and very strong two-year rally. Conversely, if February’s lows are breached, odds favor we are heading lower. Stepping back, the two big areas to watch are 2018’s high which is resistance and Feb’s low which is support. By definition, we are moving sideways until either resistance or support is breached.
On Monday, stocks jumped 400 points as the week began with a bang. Over the past two weeks, the Dow has jumped over 2,400 points as stocks bounced back from deeply oversold levels. The so-called “FAANG” stocks — including Facebook, Apple, Amazon, Netflix, and Google-parent Alphabet led the way higher and briefly returned to pre-correction levels. After a two week hiatus, the sellers showed up on Tuesday and sent stocks lower. The market opened higher but closed lower which was a near-term sign of fatigue. Jerome “Jay” Powell, the new Fed Chairman, hinted that the Fed is open to raising rates a few more times in 2018 to combat inflation. Mr. Powell said, “We’ve seen some data that in my case will add some confidence to my view that inflation is moving up to target.” Once again, stocks opened higher on Wednesday but closed lower as sellers regained control of the market and caused the S&P 500 and Dow Industrials to break and close below their respective 50 DMA lines.
Thur & Fri Action:
Stocks fell hard on Thursday after Jay Powell spent the day testifying on the Hill and President Trump announced tariffs on Steel and Aluminum. Trump said the U.S. will implement a 25 percent tariff on steel imports and a 10 percent tariff on aluminum imports starting next week. Stocks opened lower on Friday but reversed course after buyers showed up and quelled the latest bout of selling. Once again, the market fell far very fast and was oversold and due to bounce. That raises the odds that another near term low was placed.
Market Outlook: Market Bouncing
The market is bouncing back after a steep 10% pullback. The big level of support to watch is February’s low and then the 200 DMA line for the major indices. For now, as long as that level holds, the longer-term uptrend remains intact. As always, keep your losses small and never argue with the tape. Want To Learn How To Invest? Sign Up For 1-on-1 Sessions With Adam Sarhan.