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Europe exhales

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10/18/11

Stocks have been rallying strongly lately on optimism out of Europe, but yesterday the markets had a little water splashed in its face when Germany played down expectations. The Dow lost 248-points.


For the TSP, the C-fund was down 1.93% yesterday, the S-fund dropped 2.84%, the I-fund fell 2.17%, and the F-fund (bonds) gained 0.30%.


I did a lot of rambling yesterday so today I will just stick with the charts...

The S&P 500 is testing the upper end of the trading range between 1100 and 1225, and the 200-day EMA. The resistance appears to have initially held but the index is still trading above the 50-day EMA. The low volume sell-off was concerning but not a deal breaker for the rally yet.


Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk


The Dow Transportation Index also held the 50-day EMA while pulling back from overhead resistance. It seems caught in a tight spot and we will just have to see which way this wants to break.


Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk


The Nasdaq pulled back 2% but was able to close above the 200-day EMA. This has been the strongest of the major indices but it will be important for the index to hold that 200-day EMA or the other indices will likely give up their 50-day EMA's.


Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk

The recent rally has been so explosive that any pullback is certainly reasonable and healthy, but if the over head resistance holds, and the support below does not, then we could be looking at another move toward the lower end of the trading ranges.

Earnings will be pouring out this week as will economic data, so there are enough catalysts outside of Europe to move the market, but when the market gets maniacal about something, it seems to be the only focus - and right now that focus is Europe.

IBM did report earnings after the close yesterday and while they did modestly beat the estimates, the stock had run up so much into the report that it pulled back sharply in after hours trading. That could put some pressure on the Dow today.


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

Tom Crowley


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