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Late rally Friday keeps bulls viable

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Stocks ended the day mixed and relatively flat on Friday but the bulls won the war as they battled back from steep morning losses. There was a weird, last minute spike higher that pushed S&P 500 and Nasdaq into positive territory for the day to avoid 3-day losing streaks. The Dow lagged and ended the day down 63-points so it did end the week on a losing streak - the first 3-day losing streak of the year.

Daily TSP Funds Return

The I-fund was down with the rally coming late on Friday for U.S. stocks. Overseas market were down sharply on Friday and the dollar rallied for a fifth straight day.

The market could get pushed and pulled by headlines for a while as the catalysts wane with earnings season winding down, the Fed out of the way for now, and the trade situation possibly on hold until March. The focus, as we've been saying, has been on the concern for earnings as economic conditions show signs of slowing.

This chart isn't easy to see but what's happening is clear. The S&P 500 earnings estimates for the first quarter has gone from nearly +7% last fall into negative territory most recently. It's a little difficult to justify the stock market continuing to rally until this changes.

And the decline in the yield on the 10-year Treasury has all but confirmed this projected slowdown in the economy.

The S&P 500 / C-fund posted an impressive turnaround on Friday after a two-day pullback. There is a small open gap from Thursday's gap down open, so that could be an upside target, but it remains below that 200-day simple average (pink) which is what a lot of eyes are focusing on.

The DWCPF (small caps / S-fund) was up slightly on Friday after its dip. I am wondering if this is going to try to form a large inverted head and shoulders pattern, which would be bullish for the longer-term, but in the short to intermediate-term we may see a right shoulder form similar to the left shoulder we saw created from October to the end of November?

The EFA (EAFE Index / I-fund) pulled back early, but bounced off the 50-day EMA. The EFA ETF trades all day in U.S. markets but the EAFE Index is the actual action in those markets so that's why there's often a difference between the I-fund, the EAFE Index, and the EFA, but in the long run they all eventually follow each other.

The Dollar has rallied strongly this month and has now made a higher and after the higher low made in late January. This new trend could keep some pressure on the I-fund.

The price of oil looks to be starting to rollover and after very nice rally off the December lows. It's barely hanging onto the 20-day EMA but if the dollar continues to rally, I suspect this will come down to try test the lows. It may or may not get to that low, but an effort may be made to try. Economic weakness would help that happen.

The AGG (Bonds / F-fund) made new highs on Friday and this is very interesting and it tells me that the more savvy bond traders are positioning themselves for economic weakness. I still think it is more likely to remain more range-bound despite the new highs, but if it does continue to rally then this may be a warnings sign for the economy.

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

Tom Crowley

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EFA (I Fund) (delayed)

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