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Friday, February 9, 2018

Market Alert - The Close

Another day, another 1022 point swing on DJ30. 286 on NASDAQ. 106 on SP500. Huge swings. Thursday it was high to low. Friday it was high to way low to way high. It finished upside so many were saying that Friday was THE day the market showed a change. Oversold, reached lower then surged. Big volume on the rebound.

Yeah, sure. Heard that Tuesday and look what happened. Of course Tuesday was not the ideal reversal day: it never had that real selloff. It was down pre-market but was recovering and did so from the opening bell. There was not that purge. Friday was better: an upside start after an ugly selloff gave hope. Then it was dashed when the gains were replaced by big losses.

JPM came out with an afternoon note stating the selling was just about done. That helped act as a trigger and stocks did rebound, indeed surged, into the close. Gains that were turned to losses turned to gains once more. Maybe the day marked the end of the volatility, but it was certainly a volatile day.

SP500 38.55, 1.49%
NASDAQ 97.33, 1.44%
DJ30 330.44, 1.38%
SP400 1.09%
RUTX 0.96%
SOX 3.05%
NASDAQ 100 1.69%

Not a lot of news. The government shut down at midnight but an early morning deal opened it right back up. AMZN announced its own shipping service to take on FDX and UPS.

Earnings continued with mostly beats, but even stocks beating expectations did not have an easy go of it. It would appear the market volatility has overtaken every other story other than perhaps the Fed agreeing to lay down regarding rate hikes. Even that, however, would not be a market positive.

On the lows some important levels were touched. SP500 sold to tap the 200 day SMA, passing the 78% Fibonacci retracement along the way. Then a sharp rebound to the 61% retracement. DJ30 did not get that far, undercutting the 61% Fibonacci retracement then rebounding to close much higher. NASDAQ touched close to its 200 day and it held right at the 78% retracement and shot back upside. All show doij with long tail, a reversal indication.

RUTX and SP400 undercut their 200 day MA's and then snapped back to show nice doji with tail over that level on the close. That kept RUTX over the 200 day and the November low. SP400 ditto.

SOX gapped higher sold to undercut the Thursday low, also undercutting the December low. Then a surge back up to close well above both. Hmm. Looks as if the neckline to a head and shoulders is set, and now you watch SOX' rebound to see if it stalls at 1350ish and rolls back over. That, however, is the move after the next, not the next move that is a rebound back up to test that 1350 level.

It is a pretty decent bet to surmise the Friday low is the low of the first leg. It is not a proven fact, but it is a good support level with good extreme internals that suggest a high probability of a rebound that lasts more than a day and a half. It is not THE bottom, but one that supports a relief bounce that sets up THE bottom or at least a try at THE bottom after the coming relief move stalls and falls to test the Friday low.

That said, we didn't buy the rebound. Really thought about it, but opted to wait and see if stocks can hold Monday. A soft open met with buying is a great entry point for the relief rally back up to test somewhere below the highs from late January. That is the tradable move we are looking at this weekend with plays. We get in, ride it, take the gains when the move starts to sputter after a good week or so, then look to play the test downside to or below the Friday low. Same play book as before, just starting from a lower level after a deeper test.

Have a great evening!
Jon Johnson, Chief Market Strategist
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