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Stocks take a break after winning streak

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Stocks were down on Tuesday as the Dow lost a buck ninety and we saw losses between a half and one percent in the various indices, with small caps and the Transports being the laggards near that -1.0% area. The IMF lowered its growth outlook for the global economy and some EU tariff talks spooked stocks some on Tuesday. The question is whether this is just a break - and probably a well deserved break - for stocks, or if it turns out to be a "Turnaround Tuesday" for the market, as can be the case.

Daily TSP Funds Return


Bonds were up, yields down and that pushed the financial sector lower, but they had been running hot, along with many other sectors. This recent selling could just be profit taking before earnings start coming in, and some of the big banks will start reporting on Friday. Seeing a rally up to earnings, and a "sell the news" pullback after is fairly common, and that's true of the broader market as well, not just financials.

Bottom line - stocks dipped after a long winning streak. Not a big headline and probably healthy. But most of you know where I stand, and while stocks have bullish momentum on their side, they are extremely overvalued based on historical price / earnings ratios (particularly when adjusted for margin)...


Source: https://www.hussmanfunds.com

... and price to book value.


Source: https://www.multpl.com/s-p-500-price-to-book


So in my mind, the only question is when, not if.



The S&P 500 (C-fund) fell below that mini rising wedge formation between the top red resistance line and that longer term rising support line (blue dashed.) It had broken that wedge in March as well but bounced right back so it may not mean much, but if it tests the bottom of the red channel again we'd be looking at about a 2% decline. No harm there, but the reaction at those support lines is key - as in will there be buying?




The DWCPF (S-fund) pulled back from that double top consolidation area. It's too early to say, but a test of the bottom of the channel is possible. It's been a big rally and the longer the consolidation, the healthier this may get.




The Dow Transportation Index may have produced a failed breakout as it closed back below that prior high, but that's just one day and it's probably too early for it to mean much.




The EFA (EAFE Index / I-fund) remains in its rising channel but there's a couple of open gaps below within the channel that may get attention.




The AGG (Bonds / F-fund) is slowly grinding higher after nearing the top of that open gap. It's not like it's jumping out of the gate or anything, so the strength of this move is suspect. The gap is still open below, but watch that short-term rising support line for clues to whether that's going to get filled or not before another possible attempt at new highs.




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

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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S&P500 (C Fund) (delayed)

(Stockcharts.com Real-time)
DWCPF (S Fund) (delayed)

(Stockcharts.com Real-time)
EFA (I Fund) (delayed)

(Stockcharts.com Real-time)
BND (F Fund) (delayed)

(Stockcharts.com Real-time)

Yahoo Finance Realtime TSP Fund Tracking Index Quotes