Stocks Bounce As Bulls Quell Bearish Pressure- For Now

Stocks rallied last week after the narrative in D.C. shifted toward a tax cut. From a technical perspective, as long as Monday’s low holds, this appears to be another short-term and shallow pullback. The major indices are tracing out a new early entry (see the latest downward trendline above). A break above that level will trigger a new technical buy signal.

The Dow Jones Industrial Average & the benchmark S&P 500 snapped a two-week losing streak as investors grew hopeful that the White House will be able to cut taxes. Meanwhile, the Nasdaq Composite and the Small-Cap Russell 2000 both snapped 4-week losing streaks. Buyers showed up and quelled the bearish pressure. Finally, the Dow Jones Transportation Index continues to woefully underperform its peers and is flirting with major support (recent lows). The fact that the transports continue to underperform bodes poorly for both Wall Street and Main Street.

A Closer Look at What Happened Last Week…

Mon-Wed Action:

Monday was a near term low for stocks as the market opened lower but closed higher. Whenever that happens, after a few week decline, that usually means the market is ready to turn higher. Thankfully, the political rhetoric eased considerably and investors turned their focus to a tax cut which is a net positive for the economy. Separately, President Donald Trump presented a strategy for the war in Afghanistan and possible engagement in South Asia. The U.S. and South Korea also engaged in war games on Monday in a strategy to deter North Korea.

Stocks soared nearly 200 points on Tuesday after buyers showed up and short sellers covered their shorts. The primary catalyst for the strong rally was renewed hope that the White House will be able to cut taxes.

Stocks slid on Wednesday after the S&P 500 and the Nasdaq Composite rallied into their respective 50 day moving average lines – which was near term resistance.