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Thursday saw very similar action to the previous Thursday. A quick dip down at the open followed by a reversal, and big move up with a close near the highs of the day. Often these type of days mark a bottom of a correction so we have to watch to see if that was it as it is too soon to tell. But bulls made some nice progress. Economic news was ok as weekly jobless claims fell again and retail sales climbed 0.6 percent in May, topping expectations for a gain of 0.4 percent. However near the end of the day the Wall Street Journal reported that an adjustment in the Federal Reserve’s bond-buying program did not mean that the central bank would end “all at once” or that the Fed was “anywhere near raising short-term interest rates.” Investors took this as an “all signals go” on the punch bowl being provided by the Fed and stocks rocketed upward immediately. The S&P 500 added 1.48% and the NASDAQ 1.32% Let’s take a look at what signs to look for, to see if this was a lasting bottom technically.
The S&P 500 fell to its 50 day moving average in the morning but as you can see did not make a lower low versus the low it made last week. It bounced all the way from that 50 day moving average to the top of the descending channel. The coast is not yet clear but another significant rally could put a nail into the 3+ week correction – that would be a close over Monday’s highs, creating a higher high (to go with the higher low put in today), along with taking the index outside the upper end of this channel. Of course that is only helpful, if the index does not immediately roll over but this is the thing technicians will want to watch.
The NASDAQ is in a similar situation.
The WSJ comments helped rally bonds, which lowered yields, as it means less chance of QE going away anytime soon.
Perhaps any new leg up (if that is the next step in the market) would be accompanied by a breakout by oil, which remains stuck in this 5 month range. Each time it gets close to breaking out it reverses – a tease indeed.
Emerging markets – while broken technically as a chart – put in a sharp reversal; this type of pattern today is called a hammer and often can mark some sort of short or intermediate term bottom. This is another area we can watch to see if there can be some constructive action.
Remember last Thursday we had a furious day and a half rally off a key reversal pattern but things fell apart right after. So bulls are not out of the woods – often the most sharp rallies come within the context of corrections. So the next handful of days should reveal a lot.