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Market sells off BEFORE tariff news

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The market was under downside pressure out of the gate on Monday morning and the indices trended was down all day. The last hour of trading was quite weak and it may have been a realization that the dip buyers weren't showing up this time. The Dow ended the day down a modest 0.35% but the broader indices, particularly the Nasdaq and small caps, were hit much harder.

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The early talk yesterday was that it was another trade related sell-off. The problem with that theory is that the Dow was the relative leader with its 0.35% loss, while the Nasdaq and small caps lagged. That's not what we've come to expect during these tariff tantrums since large companies would be more impacted by the tariffs. Also, the dollar has usually been up on these trade headlines, yet the dollar was down rather sharply on the day helping the I-fund to outperform.




I think yesterday's selling may be a little more than the typical trade news knee-jerk reaction, and the normal Pavlovian response from the dip buyers may not be the same - as we talked about yesterday.

But after the bell yesterday there was an announcement that President Trump will impose a 10% tariff on $200 billion of Chinese imports which will rise to 25% at the end of the year. Now we will find out if the larger companies' stocks can withstand this news that will put direct pressure on their bottom lines, and if small caps can bounce back - or if this is going to be a broad sell off. The S&P 500 futures were down about 0.33% at the time of this writing, 7:15 PM ET.



The S&P 500 / C-fund started the week coming off a positive reversal day on Friday, but it could not capitalize on that and we saw the bears jump on it. We have been wondering if the bears had the fortitude to sell in this positive momentum environment, but we're in the latter half of September and the bears tend to come out of hibernation about now.




The small caps (S-fund) were hit particularly hard and the chart is getting a bit dicey with a bearish looking flag forming.




The Russell 2000 small cap index is testing key support with a little bit of wiggle room underneath, but if that fails there's large vacuous area for it to sink into. So, whatever happened on Monday better get resolved fast.




The Nasdaq was laggard dropping a nasty 1.43% on the day and it is also hanging onto some precarious looking support.




The EAFE (I-fund) was up as the dollar was down sharply on the day, as we showed above. It is getting closer to some overhead resistance that tends to swat back bear market rallies.




We saw virtually no damage done to the credit markets yesterday as the HYG remains just a few ticks below its highs. Now perhaps Friday marks a high, and it is at the top of a range, but the fact that it held up well while stocks were falling is at least a good sign for stocks. I have been seeing a few yellow and red flags here and there for stocks, as our Plus subscribers know, but so far this credit market is still one of the green ones.




The AGG (bonds) was flat and remains just below several layers of key support. It appears to be in a little trouble here, unless stocks really tumble where investors may jump into bonds for safety.




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: www.tsptalk.com/plus.php

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

Tom Crowley


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


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