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Earnings pause the S&P but small caps rally again

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Stocks were choppy on Thursday with a bit of drama in there but the indices traded in a fairly tight range despite the modest losses. The Dow lost 135-points and some were saying comments from President Trump was the catalyst, but we actually saw the lows before Trump's comments so I'd say it had more to do with earnings. Small caps actually had a good day so it wasn't a bad day for the TSP if you had some S-fund holdings.

Daily TSP Funds Return

President Trump commented on interest rates on Thursday saying he doesn't like to see the Fed raising rates while his policies are trying to stimulate the economy. That is something that we don't generally hear from a president but of course Trump's background is in business, not politics, and given his propensity to tell it like it is, I guess we shouldn't be surprised. Stocks were shaken a bit but we actually traded in a fairly tight range on the day so the reaction to his comments may have been overblown by the pundits, but not by investors.

Some weak earnings reports set the tone for the day early on as Amex, Alcoa, and eBay were all down sharply, but after the bell on Thursday we saw some positive earnings from Microsoft.

Bonds were up, and yields down which hurt the bank stocks after their recent strong run.

The S&P 500 remained above the key 2800 area so there's been no real technical damage done with Thursday's losses.

The S&P 500 / C-fund remained in the F-flag and that 2815 - 2820 area may be a level of resistance and since F-flags tend to break down eventually, this could be getting a little "toppy". That said, F-flags can go on (up) longer than we'd think while they are rising. But I still expect that open gap near 2765 to get filled by the end of the month or maybe even into August, when the -fund breaks down.

The small caps (S-fund) look better than the large caps right now although they are up against some resistance. Double tops tend to be followed by a pullbacks, but triple tops in general do not. The bull flag and cup and handle formation look good for this index, but the question will be whether they can breakout if the S&P pulls back from its F-flag.

The Financials (XLF) pulled back after its big 3-day rally and moved back down into what may be considered a bear flag.

The EAFE Index (I-fund) dipped back after testing the top of its large descending trading channel.

The weakness in copper has been intriguing given the strength of the economy. It could be the rally in the dollar but also the weakness in the Chinese economy may be a major factor.

Right now the strong earnings may be stealing the headlines but once they are behind us we may start hearing more about the bear market hitting the Chinese stock market. This looks awful so it makes you wonder how long the U.S. markets will ignore it. Some might say it is the tariffs / trade war that is causing this weakness, and that may be the case. Perhaps that means the U.S. is winning the trade war but eventually this action may leak into the global markets.

AGG (Bonds / F-fund) rallied up to prior highs before backing off some. Right now it's a squeeze between the resistance at those prior highs, and some rising support. That's more bullish than bearish foe bonds and perhaps Trump's comments on interest rates will give bonds the boost they need to breakout since he's hoping for lower rates / yields. Bond prices move counter to yields.

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Thanks for reading. Have a great weekend!
Tom Crowley

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  1. userque's Avatar
    "given his propensity to tell it like it is"

    LOL! To do that, you have to have a propensity to tell the truth.

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AGG (F Fund) (delayed)

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