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New month, new quarter, and pre-holiday positive bias

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Stocks were having a very solid day on Friday until the last hour of trading where most of the day's big gains were lost. The indices did close in positive territory, but a near 300-point gain turned into a 55-point gain for the Dow, and 1% gains in the S&P 500 and Nasdaq nearly completely evaporated. It was likely just end of the quarter shenanigans from money managers, but it did leave some ugly negative reversals on the charts.

Daily TSP Funds Return

The I-fund held onto a 1% gain, but of course overseas market were closed well before the late sell-off in U.S. stocks, so today's I-fund price could get some negative fair value.

The recent decline in stocks was probably needed in the high-flying Nasdaq and the small caps, but some sectors like financials just haven't been able to catch a bid so the action is downright bearish. Perhaps the new month and new quarter will bring in bargain hunters. My theory is some dogs were sold by money managers last week to clean up end of the quarterly reports, but they may be buying back those bargains this week.

Other than that we still don't see any kind of rush to safety from investors as we see gold has been falling for months, so perhaps this has been just a cleansing of some overbought stocks.

The holiday does make things a little more interesting in that there is a tendency to see the larger trend get disrupted temporarily, and then resume after the holiday. So even if we do see some buying we'll have to wonder if it's the impact of the holiday, or if it's a new direction for the new quarter. If stocks stumble in these two trading days before Independence Day, then I don't know what to make of it as far as seasonality, and the start of a new month / quarter. It would be going against most tendencies.

The S&P 500 / C-fund was having a great day until the last hour of trading, and you can see in the chart the negative reversal pattern that action created. It did post a small gain but it also closed below the 50-day EMA and that makes 5 straight days and that's a red flag. There's a difference between a pullback and a change in trend and this chart is right on that line now. The bears could try to put some pressure on here but again, seasonality is on the bulls side.

The small caps (S-fund) ended the day flat but unlike the S&P, it closed above the 50-day EMA and for now it still looks like a pullback from the highs rather than a change in trend. But if the bears can take out that 1400 level this week, that could change.

The Dow Jones Transportation Index was also rallying nicely after the positive reversal day on Thursday, but that last hour changed everything. It did manage to barely close above the 200-day EMA but those negative reversals tend to bring negative momentum into the new trading day - although not always and the end / start of the quarter could turn out to be one of those times where it is not a typical reversal.

The EAFE Index (I-fund) closed higher but as I mentioned above, it may have only held on because the overseas markets closed before the negative reversal in the U.S. markets. Still, this is a beaten down chart and needs to hold at it the bottom of this trading range, or else...

The financials were rallying along with the rest of the market almost all of Friday, and it broke above some resistance before the rug got pulled out from under it and it landed back below the 200-day EMA and near the recent lows. Will money managers start to buy these laggards now that the new quarter has started and they don't have to show them in their 2nd quarter reports? That's a possibility.

While the financials have been a drag on the indices, the energy sector has come to life and that has perhaps been helping the indices to stay afloat.

The High Yield Corporate Bond Funds are flashing a warning sign as it trades back below its 50-day EMA and broke the rising support line last week. This could be trouble for stocks if it doesn't snap back this week.

The AGG (Bonds / F-fund) was up and it is again testing that 200-day EMA so bonds continue to show more strength than you'd expect with the Fed raising rates.

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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