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Stocks bounce back late from skuggish day

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Stocks were down most of the day on Friday but a late rally pushed a couple of major indices into positive territory, while the Dow shed 10-points - a second consecutive loss after 9 straight winning days. Small caps and the Transports continue to outperform as they posted solid gains and are reaching for their old highs.

Daily TSP Funds Return

Since it is following the historic averages so closely, let's take another look at the September seasonality chart. If you look at the 22nd on the chart, which was Friday, you see that it was a negative day return-wise on average. The late rally did take the S&P to 0.06% on the day, but you can see that its percentage of times being positive was near 50%.


Chart provided courtesy of www.sentimentrader.com

By comparison, Thursday the 21st, which was a down day, has been positive only 30% of the time over the last 30 years. The following two days on the chart (the 23rd and 24th) were quite negative, but this year those days fell on a Saturday and Sunday, and on the 26th the data gets a little better. Will the market dodge that weakness or will that weakness roll into the start of the new week?

The start of October has a decent record but starting on the 6th it goes back to underperforming a random day.



The SPY (S&P 500 / C-fund) was down most of the day on Friday but crawled its way back to positive territory by the close. You can see that there has been a bit of a rolling over from the highs, but we know stocks don't go up forever. The question is, if this is going to pullback, will it be a dip that is quickly bought, or do we see more of a cleansing of the chart that will fill the open gaps and retest the moving averages? There seems to be more room on the downside, but betting against this market has not been rewarded at all this year.




The DWCPF (small caps / S-fund) made another new high on Friday, which is a little surprising since it came such a long way to get back to that old high where it seemed a little pullback was going to be obvious.




But as I mentioned last week, the major small cap index is the Russell 2000 and the DWCPF, which our S-fund tracks, is not a closely followed index and technical analysis doesn't work quite as well on it, so it may take its queue from the Russell, which is about to test its prior high. If the Russell 2000 sees a double top pullback, so will the S-fund.




The Dow Transportation Index is acting similarly to the small caps as both have lagged the large caps, as far as making new highs, and they are both getting ready to test that now.




The EAFE Index (I-fund) was up and the I-fund was given a better price than the EAFE index as the TSP is trying to catch up to the EAFE, which is greatly impact by the dollar and overseas markets, so it's not always in sync, but they will eventually be back in line.




The Volatility Index has closed below 10 for a 3rd straight day showing complacency from investors. We saw similar readings in July but these are historically low levels.




The weekly VIX chart shows the steady decline and it's almost as if investors are falling asleep and ignoring any possibility that stocks can also go down.




The AGG (Bonds / F-fund) was up but found resistance at the 20-day EMA after bouncing off of a couple of layers of support. This doesn't look bullish but an oversold rally is not out of the question as long as support continues to hold.




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

Tom Crowley


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