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Rates, the dollar, and oil putting pressure on stocks

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Stocks opened lower on Tuesday, actually gapping lower leaving yet another open gap on the S&P 500 chart. The Dow lost 193-points, breaking its 8-day winning streak and we saw about 3/4 of a percent shaven off of the three major large cap indices. Small caps help up well while the I-fund was up against another rally in the dollar.

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Will stocks be able to withstand the pressure of the dollar rallying, interest rates climbing, and the price of oil up near new highs? Taken individually we could have a bullish case, but with all of them moving up it may be weakening the bull market.

The 10-Year Treasury yield hit its highest level since July of 2011 yesterday as it closed solidly above 3%. That 3% level may not be meaningful in and of itself, but investors are still unsure of where it is going.

The selling in stocks has come under light volume so it's not like there's panic out there, but maybe last week's rally marked a good spot for investors to take some profits with that uncertainty looming. And why not? The past may be signaling a warning sign.

Taking a look at a monthly chart of the 10-year yield going back 20+ years, and comparing it to the S&P 500 shows a possible interesting development. The two prior times it hit the current long-term descending line, the stock market was in the process of peaking over the next several months. I'm not making any predictions. It's just an observation.

The S&P 500 / C-fund has been following the pattern we've been watching quite precisely, and yesterday's gap down created yet another interesting pattern. The two gap downs off of peaks in January and March (green) went much lower before any serious attempts to get filled, and officially they are both still open. The gap created by last Thursday's rally was filled yesterday, just as the other blue gaps were.

The S-fund held up well but lost a 0.2% and it's backing off from that longer-term resistance line. The head and shoulders pattern is still in the picture as the head test appears to have held so far.

The Dow Transportation Index is also backing off from the top of its trading channel.

The EAFE / I-fund is no different. It hit a double dose of resistance this week and has pulled back.

A lot of that had to do with the dollar, and with the dollar trending higher, it will be a little tougher for the international markets.

The High Yield Corporate Bond Fund fell sharply yesterday - from the top of what looks like a bear flag, to the bottom, so it's in a make or break area too. It also closed back below the 50-day EMA.

The AGG (Bonds / F-fund) broke down from its bear flag with those yields flying through 3% yesterday, and it closed at new lows again.

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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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)

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DWCPF (S Fund) (delayed)

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EFA (I Fund) (delayed)

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AGG (F Fund) (delayed)

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