After six brutal market days the popular averages rallied strongly on Wednesday to finish near the highs of the day on heavy trading volume. The Chinese national bank announced it will create more new money. The New York Fed president suggested that the idea of a September raise in interest rate targets is now less compelling in light of overseas economic concerns and stock market turmoil. Durable goods orders rose more than expected in July. Meanwhile, the prices of crude oil and gold fell on Wednesday.
Above is my 3-month chart of the S&P 500 exchange traded fund (SPY). The price attained a record level in late May before falling under the 50-day moving average in early June. A mid-June rally above that moving average fell apart later in June. That led to a two-week test of the 200-day moving average. A mid-July rally again pushed the price above the 50-day MA before a collapse back to the 200-day MA later in July. Here in August the price had been oscillating between those two moving averages until the drop last week on Thursday.
The larger scale waffling in the SPY price over the last few months took an ugly turn to the south amid heavy trading volume in recent days. SPY price drops in June and July presented short-term buying opportunities. The August capitulation appears to have gone beyond reason and may have presented a similar opportunity. The failed rally attempt on Tuesday was concerning but the huge rebound on Wednesday was heartening. Nevertheless my outlook arrows remain stuck in neutral until the market signals a more definitive bottom or that it has further to fall.
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