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Currency and trade wars?

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It has been a while, but stocks finally had "one of those days" and it was the first one of 2019. The Dow lost 767-points and we saw losses of 3% or more in many indices. Will we get a Turnaround Tuesday, or is just the start of something more sinister? Bonds rallied as the yield on the 10-year Treasury fell to 1.74%.

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China devalued their currency so we may have a currency war on our hands, on top of the trade war escalation, and the market, which is largely overvalued historically, is starting to react with more seriousness.

The temptation is to buy into a drop like this, and then it wears on little longer than makes you comfortable until you say, "get me out any any price" and that's about when a low will be made.

Actually, I don't know if that will be the case this time since we know that a positive trade tweet from the President could come at any time and we'll get some kind of monster rally, but you still have to be careful. Sometimes those headline rallies, while stocks are in the mood to fall, can be brief and a trap.

Bitcoin and gold are on the move again with all the recent issues with global currencies.

The S&P 500 (C-fund) fell sharply for a 6th straight day and the losses seem to be getting worse. It did fall right through that 200-day EMA, but that may have been a little panicky and it did close above it. This is a dangerous market now although sharp snap-back rallies are possible, but they could also be a trap. The rebound in mid-May that bounced off the 100-day EMA was one of them. You get a few days of upside and you think the coast is clear, but it turns out to be just the first wave of selling. Be careful.

This longer-term chart going back to the early 2018 peak shows that the S&P failed at the top of that large resistance line off the highs. The question now is, where is the bottom of that trend? Perhaps the 200-day EMA will hold as it did a few other times, but not every time.

The DWCPF (S-fund) took a 3% haircut along with the S&P 500 so that was no place to hide. It is now below the 200-day EMA, which is always an attention grabber, although in early June the low was made a few days after it fell below the 200-day so you never know. This one feels a little different though, don't you think?

The EFA (I-fund) fell through the 200-day EMA and some key support yesterday. We see gaps opened on many of the charts that will be eventual upside targets, but we better see how this settles before playing for that to happen. There's another open gap at about 57.50.

The dollar also gapped down and as bad as the recent 3-day decline has been since the new tariffs have been announced, it is just at the level it was a week or so ago, and that large open gap near 26.35 was an obvious pullback target area anyway.

The High Yield Corporate bonds were down, but "just" 1% so this may be the clue as to how severe this decline in stocks will be. If this can hold up without too much damage in the coming days, that might be a green light that the pullback won't be so bad. But if this rolls over further... not so good.

Despite the dollar falling, economically sensitive copper hit new lows over the last couple of trading days. That's an economic red flag.

AGG (Bonds / F-fund) rallied again and the safety trades of bonds and gold were popular again. It's hitting the top of a channel that could provide resistance, but that resistance line is rising

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

Tom Crowley

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SPY (C Fund) (delayed)

( Real-time)
DWCPF (S Fund) (delayed)

( Real-time)
EFA (I Fund) (delayed)

( Real-time)
AGG (F Fund) (delayed)

( Real-time)