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The bleeding stopped for a day. Can stocks now rebound?

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There was some late selling on Friday afternoon, as you might expect heading into a weekend with so much geopolitical tension in the air, but the indices did manage to hold onto to some small to modest gains on the day. The Dow gained 14-points while the Transports, Nasdaq, and small caps led on the upside, but these were the ones hit the hardest recently.
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There was no big relief rally on Friday but the bears took a break after 3 consecutive down days, so we saw the bleeding stop for a day. Technically, there has been some damage done to the charts with some holding up better, while others have been hit hard enough that we might look for an oversold bounce.

The market may have been looking for an excuse to sell off after that amazing 10-day winning streak in the Dow leading up to last week's pullback. But investors may now get a little more picky and do more bargain hunting in some of the beaten down indices, rather than continue to chase the large caps. If however, this North Korean mess can be eased, we may see those leaders being bought up again. If there's one thing investors seem to fear as much as a sell-off, it's missing out on a rally.

There is a small window of semi-positive seasonality this week, during a month that has a negative bias to it, or at least no positive advantage like most months. Starting Friday the 18th it gets fairly negative again.


Chart provided courtesy of www.sentimentrader.com



The SPY (S&P 500 / C-fund) dropped like a rock on Thursday after the nuclear threats were addressed by President Trump. So far there has been no further escalation and we did get through Friday without further damage done to the markets. This SPY chart shows it just above the 50-day EMA, but the actual S&P 500 chart is trading just below both the 50 day EMA and SMA (simple average.) That open gap from early July is there for the bears to try to fill, and we know they do tend to get filled, but the question is whether we see any kind of relief rally first.




The 2017 chart shows that the SPY still holding above the longer-term rising support line, after falling just below a short-term support line. 242 - 243 looks to be an important level here.




The DWCPF (small caps / S-fund) rebounded a modest 0.25% after the sharp losses earlier in the week. This chart is broken, but very oversold The overhead open gaps could potentially be targets for a relief rally.




The Dow Transportation Index broke down from its bear flag on Thursday and posted a decent rebound on Friday gaining 0.87%, but now the bottom of that flag could act as resistance. The 200-day SMA (simple average) has been holding as it did in May.




The EFA (EAFE Index / I-fund) has pulled back modestly and has come to rest on the 50-day EMA, which would be a very clean place for this index to find support. The weakness in the dollar has kept this one from breaking down, so far.




The Volatility Index spiked from historic lows last week, moving above 17 briefly, and closing at 15.5. Other spikes in this area gave us decent short-term buying opportunities, but as we saw in 2016, this can go much higher. In 2016 it went above 20 a few times, and above 30 a couple times early in the year. Not to mention the 50+ reading we saw in 2015, but coming off of the recent readings in the 9's, 17 seems quite high.




The AGG (Bonds / F-fund) hasn't rallied quite as much as I would have expected given the panicky selling in stocks last week, and that may be a good sign for stocks. But of course that could change if the situation in North Korea escalates.




Read more in today's TSP Talk Plus Report. We post more charts, indicators and analysis, plus discuss the allocations of the TSP and ETF Systems. For more information on how to gain access and a list of the benefits of being a subscriber, please go to: www.tsptalk.com/plus.php

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

Tom Crowley


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


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