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Dow gives back 130-point gain

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The Dow blew a 130-point early gain yesterday and ended the day down 4-points. Granted, volume was very light and investors are nervous in front of this Wednesday's policy statement from the Fed, but that's an ugly daily formation. The S&P was flat and the Nasdaq was down modestly after some profit taking in Apple, while small caps had a good day.

Daily TSP Funds Return



The action was not good but it's difficult to make too much out of it at this point. We went into the week with a positive reversal day on Friday which meant we would likely see some upside at some point on Monday, and that we did. But we saw how quickly that can be negated. That's how we head into Tuesday - a negative reversal day which could means some early weakness, but where it ends, no one knows. With the Fed on deck tomorrow, it's jockeying for position from the traders and feels like noise.

The SPY (S&P 500 / C-Fund) still has an overhead open gap. The flag formation looks more bearish now than it did a day or two ago, but look at that drop off in trading volume. It's really hard to give yesterday's action much credibility. It's likely nervous bulls doing some selling before the Fed.




This chart I posted last week shows that those bear flags in a bull market don't always resolve to the downside but they can give us a fake breakdown before rallying. This week may be set up to give us that kind of action - that is a big move in one direction that reverses in the other, but where it starts and stops is the $64,000 question.




The DWCPF (small caps) actually popped above the bear flag we have been drawing but couldn't quite hold above the 20-ay EMA after breaking above it early in the day.




The EFA (I-fund) closed higher as the dollar pulled back. It closed well off the highs trying to fill the opening gap higher, and it has so far held at the 200-day EMA.




The High Yield Corporate Bond Fund is either giving us another "V" bottom after finding support at the 50-day EMA again, or this is a bear flag that the Fed could break. It could really go either way. The 50-day EMA has basically held all year, but right now that looks very "bear flaggy."




The AGG (Bonds / F-fund) was flat to slightly lower on Monday. This looks like a bear flag and like the S&P there is an open gap above. It appears that the AGG and SPY will likely follow a similar path initially after the FOMC meeting. That is, I wouldn't be surprised to see the short-term action be volatile enough to fill those gaps, but from there, I don't know. It depends if there is a rate hike and what the Fed says about December.




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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)

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DWCPF (S Fund) (delayed)

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EFA (I Fund) (delayed)

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BND (F Fund) (delayed)

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