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Big week ahead - jobs report, gov't shutdown?, FOMC, tax cuts...

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Stocks bounced around above and below the break-even mark yesterday with varying closing results for the indices as the rotation from one sector to another continues. The Dow lost 40-points, which was the lows of the day, while the S&P was flat, and the Nasdaq caught some bargain hunters after its recent decline, and closed just off the day's high.
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The small caps took another moderate loss and the I-fund slipped on weakness in the Asian markets.

A government shutdown is the concern on Wall Street although most expect some kind of continuing resolution to be passed before that happens. But, with the deadline coming Friday, the market still must speculate in the interim.

A 22% corporate tax rate is being talked about now instead of the original 20%. Whether that helps or hurts the case for passing of this bill is debatable. Obviously it is better than the current rate for corporations but the market may not react positively since 20% may be priced in. That said, the extra 2% is supposed to help pay for the bill, which has been one of the roadblocks.

The November jobs report will be released on Friday morning and consensus estimates are looking for a gain of 190,000 jobs and an unemployment rate of 4.1%.

Next week is the FOMC meeting and the market is expecting a rate hike, but as always, it's the guidance for future action that investors are interested in and could be the market mover.

The SPY (S&P 500 / C-fund) was flat and we can look at that two ways... Either the bears ran out of gas and the selling is subsiding. Or we can say that the dip buyers could not push stocks up as easily as they have in recent weeks. From a technical analysis standpoint, a move down to the 20-day EMA would be a clean place to find support - then it would be the bottom of the rising channel, and finally the 50-day EMA.

The Nasdaq 100 has been bouncing back some, but is it just in the process of creating the right shoulder of a bearish head and shoulders pattern?

The DWCPF (small caps / S-fund) had an interesting day and I haven't seen anything explaining it, but my theory is that the sharp spike may be related to a dividend payment because the same type of action happened last year at this time. By the close the S-fund was down about 0.4% and basically testing the lows from last Thursday's quick "Michael Flynn sell-off."

The EAFE Index (I-fund) was down sharply pushing below the 20-day EMA, down to the 50-day EMA. Overnight weakness in the Asian markets helped it gap down.

China's Shanghai Index dropped sharply midday but recovered most of those losses creating a major reversal day above the 200-day EMA.

But the Hong Kong Hang Seng Index was down over 2% on the day. As we talked about yesterday, there are some economic concerns in China.

The AGG (Bonds / F-fund) was up fairly sharply and broke above the wedge formation. As bonds tend to do, they go in the opposite direction than seems obvious. With interest rates likely moving higher next week, I would have thought this would be preparing to break down. It did close at the lows and created a negative reversal day so perhaps it is a fake-out, which is another common action from a wedge or pennant formation.

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

Tom Crowley

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SPY (C Fund)
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