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Friday, March 29, 2024

Thursday Fake-Out – Strong Bounces or Bust

The Dollar is down so the markets are up this morning

This isn't complicated, folks, we've seen this dance before.  The S&P almost hit our goaaaalllllll!!! of 2,035 at 2,039 yesterday and was saved by the bell and this morning we have a bit of a recovery – but only because the Dollar has fallen almost 1% to prop up the markets.

Whether Dollar-driven or not, our 5% Rule™ dictates we still need to see strong bounces before letting ourselves get more bullish.  So far, we have just the Russell making a turn off their 50 dma line at 1,203 – if that line WASN'T bouncy, things would be very bad indeed.  Keep in mind that domestic small caps are least affected by the strong Dolllar while big-cap exporters and commodity producers are most affected.  

SPY DAILYLikewise, as you can see from Dave Fry's SPY chart, we're testing the 200 dma on the S&P and that had better be bouncy or look out below.  The bounces we'll be looking for are:

  • Dow 18,200 to 17,600 is 600 points (3.3%) and we look for 120-point bounces to 17,720 (weak) and 17,840 (strong).  
  • S&P 2,120 to 2,040 is 80 points (3.7%) and we look for 16-point bounces to 2,056 (weak) and 2,071 (strong).
  • Nasdaq 5,000 to 4,850 is 150 points (3%) and we look for 30-point bounces to 4,880 (weak) and 4,910 (strong)
  • NYSE 11,100 to 10,650 is 450 points (4%) and we look for 90-point bounces but may as well round to 100 and call it 10,750 (weak) and 10,850 (strong).
  • Russell 1,240 to 1,210 is 30 points and we already closed at 1,216 (weak bounce) and we'll expect to see 1,122 (strong) today in the very least and that's where we just jumped in short (1,224) on our Live Member Chat Room as Retail Sales were disappointing.  

8:30 Update:  As I just noted, Retail Sales have come in disappointing at -0.6% in February, miles below the +0.3% expected but in-line with -0.8% in January.  They are, of course, blaming the weather because who would have thought it would be cold in February – other than HD and LOW, who scored blow-out numbers?  

As you can see on the chart, this is now the 3rd month of horriffic sales numbers and I think, if I remember my math, that that's a quarter and having low sales for a quarter tends to reflect poorly on earnings, right?  I guess that's why we're already short on XRT (already down to $97.61) and numbers like these are keeping us short on the market, despite the little correction we've just had. 

XRT WEEKLYWe are up from last year – but look at the comps we had last year – especially if you take out gasoline, where sales are down 23% from last year due to lower prices.  BUT, gasoline is up 1.5% from last month and pretty much everything else was down so it's our monthly numbers that are getting weaker and that is not good.

Also you have to consider that the S&P was at 1,850 last year and is now 2,050 – that's up 11%.  These are not the kind of numbers you expect from a market that's up 11%, are they?  Of course bad news could be good news as poor numbers keep the Fed on the table and low Retail Sales push the Dollar down (no demand for spending) which can help keep the market up.

So, when in doubt, we watch our bounce lines VERY CAREFULLY and we'll see where they lead us. 

 

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