STOCKS BUILD ON YESTERDAY'S UPSIDE INTRA-DAY REVERSAL -- THE DOW CONTINUES REBOUND OFF 200-DAY AVERAGE -- SO DO INDUSTRIALS AND FINANCIALS -- BANKS BOUNCE OFF SUPPORT -- SO DO SMALL CAPS AND TRANSPORTS -- VIX FALLS BACK BELOW 20 LEVEL
STOCK INDEXES CONTINUE REBOUND...Yesterday's impressive intra-day rebound in stocks is continuing into today's trading.Chart 1 shows the Dow Industrials surviving a test of its 200-day moving average yesterday; and building on that today. That's an encouraging sign. But it still needs to clear potential overhead resistance at 26,500 (flat red line) and its 50-day average to signal a more convincing upturn. The circle in the upper box shows its 14-day RSI line rebounding from oversold territory below 30. It needs to clear 50, however, to signal a stronger upturn. Chart 2 shows the S&P 500 overcoming a small downside gap formed on Monday (red box); and reaching its 50-day average. A close above that blue line would be a positive sign. Chart 3 shows the Nasdaq Composite rising above an even bigger overhead gap (red box) and trying to clear its 50-day average. The tech-dominated Nasdaq is leading the market higher today. A couple of sectors also survived a test of their 200-day lines.
INDUSTRIALS AND FINANCIALS BOUNCE OFF 200-DAY LINES...Chart 4 shows the Industrial SPDR (XLI) also bouncing off its 200-day average this week. And building on that today. Chart 5 shows the Financial SPDR (XLF) doing the same. Financials have been weighed down by falling bond yields. A rebound in yields today, however, is lending support. Banks remain below their 200-day line. Chart 6, however, shows the KBW Bank Index bouncing off chart support along its March/June lows.
SMALL CAPS AND TRANSPORTS HOLD SUPPORT...Yesterday afternoon's message showed the Russell 2000 Small Cap Index and Dow Transports trading below their 200-day lines, but remaining above chart support at their prior lows. Those supports have held. Charts 7 and 8 show both also trying to climb back on top of their red lines today.
VIX IS BACK BELOW 20...Here's another encouraging chart. Chart 9 show the CBOE Volatility (VIX) Index pulling back from a test of its May peak. A move over that prior peak would have given a bearish signal for stocks. Today's pullback is having a more positive effect, and has helped stocks regain their footing. Even better is the fact that VIX is trading back below the 20 level which is often viewed as psychological resistance level. It's usually better for stocks when the VIX is trading back below 20.
MARKET MAY STILL SEE CHOPPY TRADING FOR REST OF SUMMER...Stocks appear to have survived this week's selling, which has kept technical damage contained and uptrends intact. That doesn't, however, wipe away bigger concerns about weakness in foreign markets with falling global interest rates and currencies. And a trade war. Nor the fact that most U.S. sectors have failed to hit new records. And weekly indicators showing loss of upside momentum. Although the lows for this pullback may have been seen this week, that doesn't ensure that U.S. stocks are headed to new records. A more likely course for the next couple of months may be a period of "backing and filling" between recent highs and lows. Chart 10 shows that the months between August and October are usually among the weakest of the year for the S&P 500. That may make for more choppy trading for the rest of the summer.
