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The test of the lows is here. Will it pass?

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Stocks completed an awful week on Friday with the Dow taking another 425-point hit. The week saw the S&P 500 fall nearly 6% as the quest to test the February lows is on. Tests of the prior corrections lows is common. What happens when the indices do reach those lows again is questionable. Breakdown or double bottom? Place your bets!
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It's never easy in a market like this. Yes, it's likely that we are due for a snap back rally at some point soon, but the downside in the interim can be an account breaker if you're too early. We're looking for a high volume capitulation from the bulls, but that's no always the case. The test doesn't always come with the same high trading volume as the original low.

The shenanigans in Washington continue and as I write this the "Stormy" interview has not been shown yet so who knows what kind of an impact that will have? The futures are up solidly (Dow futures are at a +140 implied open at 6 PM ET) as I write this so it will be interesting to see if that changes after the interview.

The Spending Bill was signed last week, so that's passed us, but the Tariff and trade wars are still the talk of Wall Street as they could impact bottom line earnings. We know interest rates are on the rise, and Wall Street is not a big fan of that, and if earnings guidance starts to show corporations lowering guidance forecasts because of the tariffs, the market won't like it. The question is, how much of that has been priced in already by this correction?

In the long run I think this will be priced in and it will be business as usual, but we know that the market gets a little maniacal about a topic until the next catalyst comes along.


The S&P 500 / C-fund broke below the big bear flag we've been tracking for weeks and came to rest just below the 200-day EMA. The bulls like to buy at that 200-day EMA but with a retest of the lows just another 50-points below, I would think that would take precedence. The technical bear flag breakdown projection comes in near 2400. So, we have 3 levels we're looking at for potential support... the 200-day EMA, the February low, and the bear flag target price.




The weekly chart shows some decent support in the area where the longer-term support line meets the 50-week EMA.




The small caps / S-fund fell through their key support levels last week and I suspect that the 200-day EMA will be tested at some point. A retest on this chart isn't as critical since it isn't a highly followed index.




The Dow Transportation Index is in the same situation, and the one we've been warning about for weeks. That is, it created a large bear flag, and they tend to break down, and they are all breaking now. The 200-day EMA and the February lows are the keys level of support to watch.




The EAFE Index / I-fund fell to its 200-day EMA on Friday as its bear flag also broke down. There's no surprise there but a bear flag downside target on this chart will be if it gets hit. It would be near 61.




The AGG (bonds / F-fund) was flat on Friday and the safety play was not on here. What will it take for bonds to rally?




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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