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Tariff fallout

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Stocks were down as soon as the futures market opened on Sunday evening, and never looked back. The trade war is in full gear now and we're seeing some of the ramifications. We know we could be a tweet or headline away from a reversal, but barring that, stock prices were being adjusted for the new higher tariffs. The Dow lost 617-points on the day, or 2.38%. The S&P had a similar loss while the more volatile Nasdaq and small caps 3% or more.

Daily TSP Funds Return


It was a day of "not this time"s yesterday.

Friday was a positive reversal day - and also an outside positive reversal day. That almost always leads to a positive open on Mondays... Not this time.

We actually ended last week with two consecutive positive reversal days - Thursday and Friday. That tends to put in a short-term low... Not this time.

Monday morning emotional gaps down tend to get filled rather quickly, often the same day... Not this time.

Midday yesterday Treasury Secretary Steven Mnuchin told CNBC the two countries are “still in negotiations. “Trump also said the U.S. is in a “great position,” in the negotiations, noting that “our economy has been very powerful; theirs has not been.” That has worked in the recent past to stop and reverse any downside action... Not this time.

Perhaps it's the program trading that has started to push the other button (sell side) and they seem to push their buttons for all they can get. When they do change back it will likely be a sharp snap-back rally, but no one waves a flag when that's about to happen.

Volatility may be back to stay for a while so the market could jump around quite a bit. There could be good opportunities to buy or sell. The S&P 500 chart shows some interesting support being tested, but if it fails we may be back in that range that the market has been playing with since January of 2018.

I don't know if we're at the point yet where we need to see blood in the streets before there is some buying. Often these declines off highs are initially a back and forth battle, with big rallies that eventually fail, and the longer that goes on, the closer we get to seeing that blood. Like I said, I don't think we're there yet but we haven't had a trade war in a while and things may be different.



The S&P 500 (C-fund) fell through the 50-day EMA again, and this time closed below it so the 3rd time was the charm for the bears. This is no minor issue now, but as many of you know, we like to see at least 3 closes below a key support line before confirming a breakdown. There was some minor support right where it closed yesterday, and there's more minor support near 2780. The 200-day EMA is currently at 2771 and that's a major level for the bulls.




The weekly chart shows that we are testing the top of that trading range that we've been in and out of a few times, but mostly in. It's that 2800 area. Normally, once resistance is broken it can act as support. That didn't happen in October as it fell back into the range. So, the bulls have their work to do from here to keep it from dipping back into that range and confirm that last breakout above it.




The DWCPF (S-fund) fell over 3% on the day, which is interesting since the small caps have been less concerned about the trade war than the large caps, but they certainly took a hit yesterday. It closed 2-points below the 200-day EMA (not good) and it is basically trading at prices we last saw in February and March. If you've been waiting for a pullback, you're getting a chance but the risks are obviously much higher with the VIX over 20.




The EFA (I-fund) was doing fairly well for a while but it has been hit hard during this pullback and is now fully below the 200-day EMA. The European markets are obviously taking note of what is happening on the China trade front, knowing they may be next.




The price of copper is an economically sensitive commodity and it has not been able to get back above the 200-day EMA that it fell below to start the month. The dollar was flat so that didn't impact it. There's a real concern about what this trade war will do to economic growth.




The price of gold shot up as a safety play yesterday. That's when you know the selling was serious, when stocks are not turned into cash that can be used to buy at lower prices later, but rather moved into bonds or gold, or other defensive positions.




The AGG (Bonds / F-fund) was up yesterday, not only as a safety play, but also because yields were dropping on the concern of the trade war hurting the U.S. economy. It could be a reflex reaction, but if no deal is made in regards to lowering those tariffs, it's a real problem.




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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SPY (C Fund) (delayed)

(Stockcharts.com Real-time)
DWCPF (S Fund) (delayed)

(Stockcharts.com Real-time)
EFA (I Fund) (delayed)

(Stockcharts.com Real-time)
AGG (F Fund) (delayed)

(Stockcharts.com Real-time)