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Sell-off continued Thursday - where's the bottom?

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It was another turbulent day on Wall Street yesterday with the Dow losing another 546-points. That was actually off the -699 lows, but the two-day total was more than 1300-points. The bulls made some intraday attempts, but midday rallies were being sold. There were some signs of oversold exhaustion, but in this emotional environment, we can't really count on typical reactions. It will more likely be wild gyrations until either the bulls or the bears eventual give up.

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There was a large mid-day sell program triggered yesterday that felt like a capitulation blow-off low, and while it was the low of the day when it completed just before 3 PM ET, I actually was surprised it wasn't enough to trigger rally into the close. Instead the Dow and the S&P drifted toward the lows into the close, which is discouraging, and that may mean lower lows today. Whether we do bottom today remains to be seen, the futures were actually up pretty solidly after hours, but markets don't usually get a bottom on a Friday. I mean, who is going to be brave enough to buy and hold into the weekend after the recent action?

If we do happen to get a washout low tomorrow with a big upswing reversal, you probably wouldn't want to be on the sidelines on Monday, but again that's not as common as a Turn-around-Tuesday, but I suppose it can and has happened. Whatever happens, it won't be an easy decision for anybody, and emotions will be high.

To make things more interesting, we start to get some 3rd quarter earnings reports today.

Gold did not get much of a bid when stocks were selling off on Wednesday, but it sure got in the game yesterday as it jumped $34/oz - it's largest one-day gain in some time.




Bonds were up too, which is a change from Wednesday, but the interesting thing here is that yields were down, and the high yields are being blamed for the recent selling in stocks. So this is a strange situation where bond prices moving up when stocks decline is a sign of nervous stock investors, but that buying of bonds sent their yields down easing some of the elevated yield / inflationary concerns.




So everyone is on a bottom watch. Whether it will be today, or 5% - 10% lower from here, who knows? A lot of scenarios can play out and your threshold for pain may make your decision (to buy or sell here) different from someone else's.



The S&P 500 / C-fund fell through some key support when the bottom of the blue rising trading channel broke down. It's below the 200-day EMA and support is a little thin around this area. That makes buying quite risky, but if you guess right it can be very rewarding. The easiest and fastest money to make is usually the blast off off the lows, but we don't know where the lows will be yet. Volume was quite high for a non-options expiration day and that may be at least the start of some kind of capitulation.




I wouldn't be surprised by anything in a wild environment like this. If we can see the start of a "V" like bottom it will likely be tested again down the road so you may need to remain nimble. If instead we start the chop back and forth like we did at the lows in March and April, that's a different story.




The DWCPF (S-fund) continued to get pounded and as we know, the small caps are the more aggressive fund compared to the large caps so they tend to go up faster, and down faster. This is a collapse but we know at some point they'll snap back... but from what level, and for how long?




The Dow Transportation Index is still flirting with some support after a major melt-down, but it is well below the 200-day EMA.




The EAFE Index was down but got a little bit of relief from the weak dollar yesterday, which was down 0.55% on the day.




The AGG (bonds / F-fund) was up on the day, something we'd expect when stocks are tanking, That didn't happen on Wednesday but by Thursday investors relented and went to safety.




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Thanks for reading. Have a great weekend!

Tom Crowley


Posted daily at TSP Talk - Market Commentary

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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