Market Alert - The Close

Stocks started Wednesday higher, but as we anticipated, the upside was pretty much bluff. Stocks started lower at the open and sold into midday. That put SP500, DJ30, RUTX at the 20 day EMA, SOX at the 10 day EMA, while NASDAQ undercut the 10 day.

Stocks bottomed at that point. It was not massive surge, but a very steady, solid recovery into the closing bell. That bounced SP500, DJ30 and RUTX off the 20 day. SOX bounced off the 10 day and NASDAQ recovered that level. SP400 lagged, coming well off its low though closing just below the 20 day EMA.

SP500 4.07, 0.19%
NASDAQ 1.55, 0.03%
DJ30 21.92, 0.12%
SP400 -0.23%
RUTX -0.28%
SOX flat

VOLUME: NYSE +5%, NASDAQ +3%. Volume rallied as the indices tested and then recovered. That can show buyers coming in on the dip, but at this juncture that is a tricky call to make. Still below average trade so no real dumping, but no real buying either. Going nowhere on rising trade is a sign of churn where stocks are running in place (okay, fast-walking given the below average volume) and that can lead to a drop when near rally highs.

Fed commentary as well as the FOMC minutes did not hurt but we do note stocks started recovering 2 hours before the Fed minutes hit the wire. Bullard countered Dudley's Tuesday tone noting the Fed may only hike one time before 2018. The angst regarding a potentially more hawkish Fed eased further when the minutes revealed a split committee regarding a rate hike in the coming months. Several said they preferred to defer any moves until they were confident inflation was moving toward 2% on a sustained basis. I guess Dudley was just a hollow talker Tuesday.

Stocks moved higher into the minutes, tested the move to the last hour, and then stocks rallied to higher session highs into the close.

Again, it was no massive surge bit not a bad test of support and rebound, particularly in the Face of the Tuesday selloff. Stocks could have just collapsed but they again found support.

The leaders did a decent enough job. FB tested the 20 day EMA again and bounced almost 1%. NFLX bounced 1.3% off its test. GOOG tested below the 10 day EMA and rebounded to hold it. AMZN tapped the 20 day EMA with a nice, quiet doji. No great surges, but a good test lower and recovery.

Similar action in leadership groups. Chips tested, moved nicely back up in several cases. Industrial machinery in nice tests. Retail put in a nice test.

Not bad, but not out of the woods. Could be Wednesday was just a continuation doji of the Tuesday higher volume selling. Could be, but not a bad response to hold and continue upside. Thursday will tell more of that tale.

We were ready to protect positions if need be and we did close ISRG and BABY. Most other positions recovered decently enough to let them continue to work through any test. Bullishness moved even higher, pushing to 56.2 from 54.3 while bulls fell to 20.0 from 20.9. Both are separating and heading to levels that suggest the kind of complacency that can lead to selloffs. Thus we are definitely on alert, watching how positions hold support and how leaders hold their patterns. That is why, even with the midday to close recovery, we do not believe the market is signaling all clear. The indices and leaders held and recovered from some selling, but there was no renewed upside surge.

Have a great evening!

Jon Johnson, Chief Market Strategist
InvestmentHouse.com
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