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Technical resistance holding. Support breaking.

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Stocks opened the new week with more losses and the dip buyers didn't show up this time. The Dow lost 391-points with 1% plus losses across the board in the major indices. Trade, Hong Kong, and some economic downgrades from the likes of Morgan Stanley, who predicted that interest rates will be going to 0% again. That not a lot of faith in the economy.

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The action was poor and some of the charts that were at make or break levels are starting to break. The dip buyers may be hearing Pavlov's Dog's bell ringing with the DWCPF (S-fund) falling below the 200-day EMA again. Buying there has worked about 5 times this year already, but one of these days buying down there may not work. The question is whether traders should keep buying at these levels until it doesn't wok anymore, or is their luck about to run out?

New closing highs for the safety trades of bonds and gold are concerning, and with yields diving and the 3-month / 10-year bonds already inverted, the spread on the important 2 and 10 year bond yields is down to about 0.07 now. If that inverts we could see some panic selling in stocks.




There's talk of us seeing negative yields, which a few months ago would have seemed ridiculous, but look at the negative yields that Germany is enduring in their bond market. You have to pay the government to hold your money...




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The S&P 500 (C-fund) posted another day off losses and that's a pretty good conformation that the 50-day EMA might continue to hold as resistance - at least until the next news headline, which have been pushing the market around lately. Trade, Hong Kong, and economic growth downgrades were the culprits yesterday. The bulls will try to hold the 200-day EMA, but the bears may be getting a little more bolder with the 50-day EMA failing.




The DWCPF (S-fund) also failed at the 50-day EMA but unlike the S&P 500, it is already below the key 200-day EMA. As I mentioned above, that's been an area where dip buyers have cleaned up. Is it going to be that easy for them again?




The EFA (I-fund) has also been wallowing below the 200-day EMA for several days. It worked to buy that pullback in May, but that's not always the case.




The High Yield Corporate Bond Fund, which is a good measures of the U.S. credit market, has held up well compared to some stock indices, but it's showing some wear with another breakdown below the 50-day EMA yesterday and the trading channel.




AGG (Bonds / F-fund) just keeps plugging away as bond yields fall. Yesterday was a new closing high for the AGG. Combine this with the near inversion of the 2 year / 10 year bond yields and the question to ask may be whether the Fed waits until the next FOMC meeting in September to cut rates, or will they go early? They have been watching this closely, obviously.




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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)