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Will negative reversal on Friday end rally?

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Stocks rallied early on Friday, but faded and erased some large gains. The indices finished mixed with the Dow adding 19-points or 0.8%, while the S&P was also basically flat. The Nasdaq was down but there were modest gains in the small caps and international funds.
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Some political wrangling was being blamed for the midday reversal on Friday, but a few of the indices were hitting some resistance after the explosive rally off of the lows.

The charts are hitting some critical make or break levels right now and the short-term indicators are overbought, but if the 2017 / early 2018 bull market is still alive, we probably shouldn't underestimate its potential as we have unfortunately done here. But in a "normal" situation, the market looks to be ready for a little break.


The S&P 500 / C-fund had a huge week last week, and as we've been saying, rallies after major downturns can be explosive. The negative reversal pattern we saw in most indices on Friday could be a sign of some trouble. It is now about 8% above the February 9th lows and may need a little breather here. The problem is, if it can't it remain above the 50-day EMA, then there's that chance of a retest of the lows.




The weekly chart shows that the long-term rising trading channel was broken on the upside to start the year and that overreach was corrected with a move all the way back to the bottom of the channel. Last week's rally sent it back near the top of the channel so the question is, will the channel remain intact with the upper and lower trend lines holding or, now that it was broken once, will it make its way back near the highs?




The small caps / S-fund has had a very decent rebound off the lows. This could be a bear flag formed here and since it has been able to get back above the 50-day EMA, that level (1371) could be key support. If it fails, we'd have to expect another attempt down toward the bottom of the flag.




The Transportation Index is testing its 50-day EMA with Friday's rally stalling where it and the 20-day EMA are meeting.




The EAFE Index / I-fund is also testing those two EMA's and appears to be a key level here.




Two important indices in the I-fund, the London FTSE and the German DAX, are in different but crucial situations. The FTSE is testing important support from what could be a bull flag which, if broken, has a lot of room on the downside with little support. The DAX could not get back above the 200-day EMA during its relief rally off the lows, and that makes this a broken chart until it can do so.




The High Yield Corporate Bond Fund had a big week along with the stock market, but it too is testing the resistance of the important 50-day EMA.




The AGG (bonds / F-fund) is trying to produce some kind of a bounce within its descending channel, but there's not a whole lot of room for it to go very far should this channel hold. It is getting quite a bit oversold, but this is a bear market for bonds and that means we should probably assume resistance will hold - until it doesn't.




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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