Market Alert - The Close

The Dow responded to the Friday test of the February lows and some 'it's different this time' after the Friday close with a solid surge. Stocks started stronger, tested midmorning, then rallied to session highs and beyond into the close. Strong gains across the board, headlined by the large cap indices and of course SOX with its 4+% gain.

SP500 70.29, 2.72%
NASDAQ 227.87, 3.26%
DJ30 669.40, 2.84%
SP400 2.17%
RUTX 2.23%
SOX 4.24%
NASDAQ 100 3.78%

VOLUME: NYSE -10%, NASDAQ -3.4%. Volume was about average on NYSE, still above average on NASDAQ. Disappointingly light as the indices recovered lost ground. Not a massive drop but again fewer buyers on an upside session.

ADVANCE/DECLINE: NYSE +3.3:1, NASDAQ +2.5:1. Decent, not as strong as the downside that pushed over 4:1.

After a week dominated by fears of trade wars, late Sunday word came out that the US and China could be reaching agreement on key issues that led to the tariff and trade war talk in the first place. Mnuchin then appeared on Fox with encouraging. Mnuchin said he and his Chinese counterpart are having 'very productive discussions' and Mnuchin said he is 'cautiously optimistic' the sides can 'reach agreement.' It would be rather amazing though logical that China would recognize its forced 'joint ventures' where US companies must 'partner' with Chinese owned companies in order to do business in China. Of course they would steal the IP, make their own products, and sell them back into the US. Sweet deal. For China.

Okay, enough side bar commentary. The point is that a main reason for the selling abated. The other point is that it was all on the possibility of a deal. Big difference. HUGE difference.

It was, however, enough for a market stretched near term to the downside AND two major indices testing the February prior lows. A bit of good news and the sellers retreated while the bids returned. For today.

So, a relief move or a renewed rally? That is of course the question. Volume lower, breadth decent but lower. Those suggest not as much upside power. A big release of downside tension for certain: huge index moves. Just not as powerful as the downside and thus something of a question mark in terms of internals.

Leadership is always the biggest factor. NFLX again showed its leadership with a break higher on rising volume. CRM came off the 50 day on strong trade. BZUN bounced off the 20 day MA on stronger, above average trade. GOOG posted a decent move off the 200 day SMA on rising trade, a possible double bottom bounce. Some smaller biotechs moved well, e.g. IMGN, ARRY.

That said, a lot of stocks rallied but on lower volume. That suggests more of a rebound than a renewed upside.

Even so, there are quality stocks moving well so we picked up positions in NFLX, CRM, ARRY, MRO, and ON. Others look good, e.g. NTNX, LRCX. If enough join in then the move works. We just pick up some positions as they show good action. We will see if they continue to set up.

As for existing positions, we closed some (e.g. CAMP, NTES) as they bounced but waffled. If the move upside continues, we let them until there is some stalling. For now, good enough as the indices bounced where they had to.

Have a great evening!

Jon Johnson, Chief Market Strategist
InvestmentHouse.com
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