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The pre-Debate deflate

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Stocks were pressured on Monday, possibly because it was leading up to the big presidential debate, and with the polls so close it could put one of the candidates in the lead for good. The Dow lost 167-points and we saw losses near 1% almost across the board, although the Transports showed some relative strength losing just 0.28%.

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The markets seemed to have a case of, "sell the rumor", as Monday's debate got closer. Whether you love him or hate him, as I mentioned before, Wall Street is a little worried about Donald Trump doing well in the debate, hence the election, because of the uncertainty he would bring, while Hillary is a known quantity to the big Wall Street banks.

I believe we saw a similar reaction on Wall Street in the fall of 2008 when an unknown Barrack Obama started to lead in the polls, but of course we had a financial crisis going on at the time and nothing was helping the market. If I'm correct in this analysis, the market could bounce back with a "buy the news" reaction after the debate since Trump doing well may already be fully priced in now.

If you're not buying the debate theory, or you're looking for something more concrete, then we can look at the weakness in bank stocks, particularly Germany's Deutsche Bank, which lost 7% yesterday. With the Fed not raising rates, the bank stocks' revenue remains tepid.


I'm on the road for much of this week so I'm going to make the chart analysis on the brief side. We'll tackle any major events as they come.

The SPY (S&P 500 / C-Fund) gapped open lower on Monday and saw some weak action pushing the index down to a heavy band of support that was being tested almost the entire day. It is now just south of the 50-day EMA. It's holding but I can't say this is the greatest pattern now that new highs were not made. The question is whether we'll get a "buy the news" reaction today or later this week that will fortify the support.




The DWCPF (small caps) opened a small gap on the downside after filling the prior gap (blue) with yesterday's losses. It looks like a double top and that's not totally uncommon on the first attempt at new highs, but clearly the bulls don't want to see a lower low made below the 1060 area.




The Dow Transportation Index held up better than the broader market as it seems to have created a small bull flag within a larger bull flag. The moving averages need to hold however, or that small flag will turn into something else - a lower high.




Bonds were up yesterday and this chart shows the yield on the 10-year Treasury as it is pushing toward the lower end of its large trading channel. (Yields go down when bond prices go up.) It had failed at the 200-day EMA earlier this month, but how long can yields fall if the Fed is intent on raising rates in December? Or will they?




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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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