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Yields and spying send stocks reeling

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Stocks tumbled to open Thursday's trading. Higher bond yields and some spy game concerns led to some profit taking and outright selling for the first time in a while. The Dow lost 201-points, or 0.75%, which was well off the lows as stocks actually rallied into the close. It got close but we haven't had a 1% loss in the S&P 500 since late June. We did get more than a 1% loss in the Nasdaq and the small caps yesterday.

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The talk on Wall Street was the recent sharp rise in bond yields -- the 10-year Treasury hit 3.2% yesterday - and that gives investors something to think about when looking for return. This bull market is getting very old and some may consider locking in the +3% rate rather than keeping exposure to stocks this late in the economic cycle.




It may not have been all yield related\, however. The losses were compounded when tech stocks sold off after a story emerged about China hacking / spying on nearly 30 U.S. companies including Amazon and Apple.

The typical response to these sell-offs has been to buy right back in, and that may be what works yet again. But be careful out there. There are some warning signs and one of these days the boy who cries wolf may be telling the truth. Internal weakness is concerning and that's not always a good recipe for the indices that are near highs.

We get the September Jobs Report this morning (Friday) and estimates are looking for a gain of about 185,000 jobs and an unemployment rate of 3.8%. Any kind of "hot" number, and that might mean year over year wage growth topping 2.9% or 3%, and we may see yields move even higher, and we'll have to see if the dip buyers in stocks, who have been everywhere over the last several months, step aside.

HOLIDAY CLOSING message from tsp.gov: "Some financial markets will be closed on Monday, October 8 in observance of the Columbus Day holiday. The Thrift Savings Plan will also be closed. Transactions that would have been processed Monday night (October 8) will be processed Tuesday night (October 9), at Tuesday's closing share prices."




The S&P 500 / C-fund took a dive early on Thursday, falling through the longer-term rising trading channel, but it bounced back late in the day recuperating a lot of the those losses, but still ended the day down 0.82%. It didn't quite hit the 50-day EMA, which would have been a more clean low, but it didn't touch it during the August pullback either.




The S-fund resumed its losing ways yesterday after a promising rally on Wednesday. Yesterday it was a sell first, ask questions later kind of a day, so we'll see if bargain hunters show up for this beaten down sector. Technically, the chart is fairly broken now.




The Nasdaq took the brunt of the selling yesterday after the China spy news was revealed. Technically, the bear flag finally broke to the downside. Is it possible that we get just a one-day breakdown before the upside resumes? Not likely, but the strength of this market has surprised me before.




The EAFE Index remains in trouble and the trend is still down and now it is back below the 50 and 200-day EMAs.




The High Yield Corporate Bond Fund has taken a two-day pounding and has fallen below a couple of levels of support. The ability of this to rebound may be the key to whether stocks come right back or not.




The AGG (bonds) sold off again, and as we've been saying, the sharp rise in yields is causing havoc, and now we see a head and shoulders breakdown on the chart.




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. Have a great weekend!

Tom Crowley


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

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