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Investors depending on the headlines right now

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Stocks opened on the downside Friday morning, sank to almost panicky levels by late morning, but bounced back and nearly moved into positive territory before a very late - get me out before the weekend - selloff in the final few minutes of trading. The Dow ended the day down 91-points with stiffer losses in the Nasdaq and small cap indices which both lost about 1% on the day.

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It's a headline driven market right now as investors wait for news or rumors on trade, the Fed, Hong Kong, etc., and with volatility elevated (VIX is at 18) we could see moves that may be exaggerated. In this kind of environment traders will buy the action that is overdone on the downside, and sell overdone rallies while things eventually settle down, so I'd expect the swings to continue.

The next Fed meeting is in September so the speculation on rates can continue for several more weeks, and the problem with the trade war situation is that most don't see a resolution any time soon, so perhaps volatility will be around for at least the rest of the summer.

The NYSE saw 177 new 52-week highs on Friday with 114 new lows being made. That's not bad considering the action and the recent high/lows trend, so that could be a positive sign. But the Nasdaq was a different story.

There were 143 new 52-week lows made on the Nasdaq on Friday, while only 68 new high 52-week highs were made. That seems odd given how close the index is to all-time highs compared to the 52-week low it made in December. So, there's certainly more internal weakness in the Nasdaq than those FAANG type stocks' action would have us believe.




I suppose we could look at that two ways. Internal weakness can mean the market is more vulnerable than it appears. Or, maybe that the indices can stay afloat without the help of the majority of smaller stocks that are not showing up for the party. The former is more conventional wisdom, but that latter has held true for a few years now.

The Producer Price Index (PPI) came in at 0.02% and this shows inflation may be slowing, which helps the Fed's rate cut case. But everyone is concerned about the trade war increasing prices on consumers, yet doesn't that increase inflation, which is what the Fed is trying to do with the rate cuts? So the trade war may not be as much of a catalyst for rate cuts as the Fed has said since it may be triggering the very thing that the Fed is waiting to happen, which is to see inflation move up toward 2%.

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The S&P 500 (C-fund) filled the large open gap (blue) last week and it has been trading in that area for a couple of days while struggling at the 50-day EMA, but finding support on Friday at the 100-day EMA. The double successful test at the 200-day EMA was another positive sign for the bull market, but if volatility remains high, the bears may make another attempt to test it.




There are other levels that could be tested if the volatility continues, and that is if the bears are able to push the S&P back down to test the bottom of the range of the longer-term trading channel. That red circle is a void that could be filled. The channel is fairly firm because as bad as the selling was last December when we saw the channel broken dramatically, it also triggered a rebound just as quick back into the channel.




The S&P 500 did recently break below the support line off that December low but it has made its way back above the support line and now finds itself at the level we saw at last fall's highs and the April high, so it's an interesting place to be right now. Basically the S&P 500 has gone nowhere in the last year.




The DWCPF (S-fund) fell back sharply on Friday after the big rally on Thursday. Like the S&P 500, the 50-day EMA swatted this index back down, and that's the key for the bulls going forward. They must recapture the 50-day EMA.




The Dow Transportation Index, a key market leader, has closed below the 50 and 200-day EMAs for six straight days, which is a warning sign technically.




The EFA (I-fund) filled an open gap and stalled and also remains below that key 200-day EMA.




The protests in Hong Kong are certainly having their impact on their stock market as it made new lows last week. The Japanese Nikkei is also struggling and these two markets are important components of the I-fund.




AGG (Bonds / F-fund) hit the top of that long rising trading channel on Friday before backing down again. It is still a stone's throw away from recent highs but below that rising resistance line. We'd need to see yields start to go up again for this to make a move to the bottom of the channel, and the question is whether that is possible while the Fed is cutting rates and the economy is showing some signs of tiring.




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

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SPY (C Fund) (delayed)

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

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

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

(Stockcharts.com Real-time)