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Downside follow-through

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The selling continued on Monday which is not a big surprise when we have a day like the one we had on Friday. The losses were steep as the Dow shed another 261-points. That 871-points in two days. This type of action does not usually result in a "V" bottom, but instead a rebound, and another test of the low, which may or may not hold. And to expect new highs in the S&P 500 any time soon may be too optimistic. But that doesn't mean we won't have tradable rallies this summer.

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The technical damage was most apparent in the weekly chart of the S&P, where the inverted head and shoulders pattern has at least initially failed in the right shoulder, although weekly charts don't close until COB on Friday, so there is time for it to improve. On the daily chart, as you will see down below, the 200-day EMA was taken out rather easily.



The selling may be overdone in the short-term and a rebound of some sort may be triggered within days, but any rally does not necessarily mean the worst is over. We may be in a new downtrend, but as I said above, there are still tradable bounced in downtrends. It's just a little tougher to make money.

I've shown this average Election Year chart several times and while the recent action may have negated the "normal" election year action, it does show that the final days in June, on average, can mark a low until late summer.



So perhaps the market will surprise us with a "V" bottom. Can the bulls count on this? It's possible, but not probable.

The S&P 500 (C-Fund) fell through the 200-day EMA and the May lows without much push back from the bulls on Monday. Volume has been very high and that shows some signs of panic, but markets tend to move in a direction longer than seems reasonable so trying to call a bottom is never easy. Look for some oversold bounces, but the question will be whether they will be sold causing a new downtrend.




The DWCPF (S-fund) gapped down on Monday and fell below May's lows. That's a lower high and now a lower low. Not the best pattern the bulls would like to see.




The Dow Transportation Index fell through its descending trading channel's support. That could be a sign of downside exhaustion that creates a relief rally. But the technical damage is apparent that this chart is broken again.




The EFA (I-fund) gapped down yet again. What a mess this chart is, but then again what a mess in Europe. It did close off the lows with a possible reversal bar. I'd hate to say that the new overhead gaps won't get filled any time soon since the the gaps in early June were filled so quickly . It's just unusual for a big decline like this to bounce back like that. Of course this has been a unique situation.




The dollar gapped up again , this time moving above the 200-day EMA. It closed off the high possibly creating a reversal day and all of these reversals could be setting up a Turnaround Tuesday.




The High Yield Bond Fund took one on the chin yesterday falling below the 50-day EMA for the first time since March. The chart isn't dead yet, but the first warning sign has been flashed.




The Volatility Index came down quite a bit yesterday but is still very high and panic selling is still in the air.





The AGG (Bonds / F-fund) was up solidly on Monday, but it did close well off the intraday high.



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Thanks for reading. We'll see you back here tomorrow.

Tom Crowley


Posted daily at www.tsptalk.com/comments.php

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S&P500 (C Fund) (delayed)

(Stockcharts.com Real-time)
DWCPF (S Fund) (delayed)

(Stockcharts.com Real-time)
EFA (I Fund) (delayed)

(Stockcharts.com Real-time)
BND (F Fund) (delayed)

(Stockcharts.com Real-time)

Yahoo Finance Realtime TSP Fund Tracking Index Quotes