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Top of the range tested, and it held

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Stocks opened lower to start the week, rallied into the early afternoon, but dropped sharply into the close creating some negative reversals on the charts. The Dow lost 96-points on the day, while the broader indices also lost a third to a half of a percent. The small caps and the Transportation Indices were slight leaders, but still had small losses.

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The modest decline comes on the heels a big rally to end last week, so it was mostly a digestion of the nearly 900-point rally in the Dow from the lows on Thursday to the highs yesterday, but it's where stocks peaked that was a concern, as you'll see in the index charts below.

The jobs report rally was rear-view mirror information by Monday as investors looked toward this week's trade talks with China on the 10th and 11th. Then come earnings season, and the late October FOMC meeting where investors are expecting yet another interest rate cut.

In the interim, it is still October and I'd expect more volatility and possibly a trading range until some of the events above get started.

The S&P 500 (C-fund) may be starting to repeat the action that we saw in August where it chopped around between the 50 and 200-day EMAs for several weeks, after a sharp decline. During that time the 200-day EMA acted as firm support, and while there were intraday breaks, it closed above the 200-day average almost every time it was tested. On the upper end, the 50-day EMA acted as resistance, and we saw that happen again yesterday, so until this trend breaks, we can probably expect the S&P to remain in the 2860 - 2950 area, which is actually a wide range and can be traded if you have the transactions to do so. Unfortunately we don't have that kind of flexibility in the TSP. Barring any positive news, look for the open gap near 2910 to possibly come into play in the coming days.

The S-fund tried to climb back toward its 200-day EMA but it fell short. One concern there, and I suppose on the S&P 500 chart as well, is that we may be seeing head and shoulders patterns forming, which tend to be bearish.

The EFA (I-fund) moved up early with U.S. stocks, hit the 50-day EMA and filled an open gap in the process, but it then pulled back creating a negative reversal day. It remains below that rising trading channel but above the 200-day EMA. I think this needs to recapture the 65.0 level to get out of trouble.

The Dow Transportation Index also filled an open gap before pulling back. It did close back within that trading channel, but it is a sharply declining trading channel so that's not as bullish as it may have sounded.

The Volatility Index hit some support in the form of the top of the red channel and the 200-day EMA before bouncing and creating a positive reversal day (for volatility.) That means the next few days could be challenging for stocks.

AGG (bonds) pulled back rather sharply as moves in the bond market go. The double top is still in play after another failed attempt to test the old high. There is some rising support just underneath yesterday's lows so something will have to give soon.

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:

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

Tom Crowley

Posted daily at TSP Talk - Market Commentary

The legal stuff: This information is for educational purposes only! This is not advice or a recommendation. We do not give investment advice. Do not act on this data. Do not buy, sell or trade the funds mentioned herein based on this information. We may trade these funds differently than discussed above. We use additional methods and strategies to determine fund positions.

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SPY (C Fund) (delayed)

( Real-time)
DWCPF (S Fund) (delayed)

( Real-time)
EFA (I Fund) (delayed)

( Real-time)
AGG (F Fund) (delayed)

( Real-time)