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VIX up and negative reversals all over the charts

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Stocks opened higher on Tuesday, but after two big up days on Friday and Monday, the rally ran out of steam fairly quickly. With some help of higher interest rate talk from the new Federal Reserve chair Jerome Powell, we saw an already failing morning rally turn into a sell-off by the afternoon. The Dow lost 299-points or 1.16%.

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The market is still concerned about interest rates and bond yields and Jerome's hint of four more rate hikes this year sent bond yields back above 2.9%. So if we were wondering if the correction was a result of those higher rates or just a well needed rest for stocks, it looks like those rates do matter.

Technically, the charts are still OK as we saw some open gaps get filled while the 50-day EMAs got tested again, but as we talked about yesterday, the elevated VIX (Volatility Index) may be telling us that this is no longer 2017 (and January 2018). Also, the outside negative reversal patterns don't bode well for Wednesday morning.

With the S&P 500 down about 2.6% heading into the final trading day of the month, it means February could be the first monthly loss for the C-fund since October of 2016, or 16 months.

The S&P 500 / C-fund did not leave the gap it created on Monday morning open for very long. That's more "normal" action. The index fell with a thud, but it has some decent support where it came to rest on the day - the top of the flag and some rising support - so the bulls might have a chance to keep this afloat. Of course the bears will try to seize on this opportunity as they look for that test of the February lows, but the bears have been frustrated for a long time and may not have the will to take that kind of a stand. Of course the VIX is near 20 again so it may be different now.

The small caps / S-fund looks to have created one of those fake-out / breakdown pennant patterns, but so far it has just given us the fake-out. It closed below the 50-day EMA again so there are some cracks already.

The Transportation Index broke out above its 50-day EMA with authority on Monday, only to see it lose those gains, and nearly all of Friday's gains as well, as it too closed below the 50-day EMA and fell back to the bottom of its rising channel.

The EAFE Index / I-fund was down and the dollar was strong and that's not a good combination for the I-fund. The 50-day EMA held here, but with much of the losses coming late yesterday for the U.S. indices, the I-fund may be taking the heat today.

The High Yield Corporate Bond Fund also fell back below its 50-day EMA, but it did close off the lows after hitting that rising support line.

The AGG (bonds / F-fund) resumed its negative ways as it turned out to be a failed breakout from the descending channel on Monday. That's one reason why we like to see breakouts hold for 3 to 5 days before confirming them. TommyIV wrote a blog post in the forum specifically on the F-fund if you are interested...

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

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  1. TommyIV's Avatar
    Thanks for the shout-out!

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