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Turkish tariffs sends their currency, along with global stocks, tumbling

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Stocks opened sharply lower on Friday after an overnight decline in the Turkish lira shook investors around the world. The Dow ended the day down 196-points which, after a late afternoon rally, was actually almost 100-points off the early afternoon lows. The selling was fairly broad although small caps held up rather well losing just 0.31% on the day.

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The lira declined sharply on Friday, down 20% at one point, as did the Turkish stock market which was down near 15% on the day, after president Trump doubles their tariffs on steel and aluminum. Their market had been getting beaten down all year but this seemed to be the icing on the cake and it got the attention of the global markets.

As we've been talking about over the last week or so, with earnings season winding down, the VIX showing excessive complacency from investors, during a light volume, weak seasonal month for stocks, and the indices trading near the tops of many ranges, a pullback would not be a surprise. We said that the headlines would be the excuse, but in reality the indices were setting up for a pause technically.

The question now of course is, what happens next? The late rally on Friday may be telling us that the dip buyers are still close at hand, but the scenario we just laid out is still in play and it could be a good excuse to see a little more profit taking after a very long stretch of gains for stocks.



The S&P 500 / C-fund gapped down on Friday so there are now two open gaps that the chart has to deal with. The closer and larger gap is the one above (blue) and the one from early July (red) and, if it can get filled, would be a very interesting place for the S&P to make a low since it happens to be the bottom of the rising channel. I don't know if the market will give those waiting for a pullback that easy of an opportunity, but it would be a market timer's ideal scenario to see it happen.




The small caps (S-fund) pulled back from the highs yet again and that makes about 8 failed attempts at making it above that June high. The chart pattern looks fine but something keeps holding it back.




The Dow Transportation Index was down modestly on Friday but it created a strong positive reversal candlestick... one that has produced continued upside movement several times over the last few months.




The EAFE (I-fund) was hit the hardest and it created another big gap on the chart. Although it is not 20% from the highs yet, I'll continue to say that this index is acting like it is in a bear market.




The dollar rallied sharply on the Turkish lira breakdown and that was a major factor for the I-fund's losses on Friday.




The High Yield Corporate Bond Fund broke below some rising support, but there's another level of support near 85.75 so it wouldn't be too much of a surprise to see this bounce back this week. But should 85.75 fail, the stocks market could get concerned.




The AGG (bonds / F-fund) made an intraday, multi-month high on Friday before pulling back within that cup and handle formation. It was a failed breakout and may produce some short-term downside action but that is a bullish formation - surprisingly.




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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