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Sell-off heading into FOMC meeting

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Stocks lost more ground to start the week yesterday, although some late buying helped moved the indices off their lows. The Dow closed down 336-points, which was about 130-points off the low of the day. The Nasdaq lagged while small caps held up slightly better, as did the Transportation Index, but it was a red day across the board.
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They were blaming Facebook's privacy scandal for the sell-off and that took down some of the big tech names that hold similar personal information about their users.

We went into this week knowing it was a post-options week that could be hit with a head wind from negative seasonality. We did see the indices close off their highs so the bulls may be hoping for some upside follow-through to a minor positive reversal day. The two-day FOMC meeting starts today (Tuesday), with a policy statement announcement and a press conference by the Chair on Wednesday afternoon.

With rates about to move higher, the continued chaos in D.C., and now a possible technology stock scare, we have some reason to be concerned. But as we saw over the last year or so, every decline can turn on a dime given the proper catalyst.


The S&P 500 / C-fund opened sharply lower on Monday morning leaving another open gap, which we know tend to get filled. The index broke below some key support off the prior lows (red line) but the parallel bearish looking flag (blue dashed) held rather firmly when tested yesterday. It did close back below the 50-day EMA for the first time in 12 trading days.




The small caps / S-fund were down "just" 1.03% and that was after an impressive positive intraday reversal at the 50-day EMA. 1360 looks to be a key support area going forward.




The Dow Transportation Index held up rather well with a modest loss of 0.35%. We now have a battle going on with a small bull flag (blue) within a large bear flag (red). It did hold above the 50-day EMA again, making it 7 days in a row. This could be a good sign for the market in general if the Transports hold here.




The EAFE Index / I-fund was also spared the worst of the U.S. sell-off because of a drop in the dollar.




The High Yield Corporate Bond Fund closed back below the 200-day EMA yesterday for the 2nd time in about a month. The last one lasted for one day, but you can see that it is overlooking a precipice, especially if it falls below that open gap.




The AGG (bonds / F-fund) remains in that consolidating bearish flag that may just be waiting on the Fed before breaking one way or the other. Your guess is as good as mine as far as direction of the breakout, but it is a bear flag, so...



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

Tom Crowley



Posted daily at www.tsptalk.com/comments.php

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