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Relief rally or is another low in?

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We didn't quite close there, but the Dow was on pace earlier for yet another 300-point move on Monday. Some selling into the close pushed it to a +250-point day, so the triple digit streak continued. It was a 1% plus kind of a day across the board, although midcaps stocks lagged a bit impacting the S-fund, and the dollar was up holding back the I-fund. As I said, we did see some late selling that may have investors nervous heading into today. Bond yields were up, and that seemed to be the main story. Monday's strong open created several large open gaps on many of the charts.

Daily TSP Funds Return

The three day rally has been impressive and we did see descending resistance taken out on some charts but this action, as you'll see in the charts below, hasn't done too much more than to respond to what may have been an overreaction on the downside early last week. Until the S&P 500 recaptures the 50-day EMA (it's the 200-day EMA for the small caps and I-fund) this nice rally probably can't be considered anything more than an oversold bounce. If it can take out some of the the prior highs and moving averages, then we may have a different story.

We had been looking for a playable bounce, but now we have to wonder if the bulls had their day. Watch that 50-day EMA for clues, as well as the top of some large bear flags we're seeing.

You couldn't throw a rock at the financial TV shows yesterday without hitting someone who thought this rally was a fake out, and we know how much the market likes to make the masses wrong. I'm nervous about it too, but when everyone is leaning one way, it could be an indication that there is some staying power for stocks.

We saw yields move higher, which helped the stock market. Yields move counter to bond prices and stocks have been moving in unison with those bond yields. I don't know if we're at the point where we can see bond prices and stocks move up on the same day. That would be a bullish sign for the stock market, rather than algorithms running the showed based on yields. But even if yields continue lower, just like we saw in prior years, where else but stocks can investors get any kind of return? Sure, it's creating a bubble in the stock market, but that has been the case for a long time now.

Gold and bonds were down so the safety trades were sold, but while economically sensitive oil and copper rallied, they both stalled at resistance levels in the descending trends.

Today could be a big day, as far as determining an ultimate direction, with all of the overhead resistance after a 3-day rally in a market that has been trending lower. Is it going to be another "Turnaround Tuesday" or can the bulls continue to put the buying pressure on?

The S&P 500 (C-fund) inched above the 50-day EMA at one point yesterday, but spent most of the day being batted down by the EMA, and the weak last few minutes of trading kept it below it at the close. The bulls are eyeing a move above that 50-day EMA, currently near 2926, and above the big bear flag above about 2955. The bears think this rally has about run its course.

The S-fund rallied above the descending resistance line yesterday but slipped in late trading giving up its early gain gain of more than 1%, and it also failed at an important level - the 200-day EMA. It's interesting that the Russell 2000 small cap index was up 1%, and the S&P 500 was up 1.2%, yet the S-fund was up less just 0.9%. For some reason midcap stocks lagged.

The EFA (I-fund) was up and also broke above that steep descending resistance line, and it lagged U.S. stocks again because of another rally in the dollar.

The Chinese Shanghai Index has been up the last two days but it has done nothing more than created a bear flag below the 200-day EMA. Being that it has been leading the S&P 500 of late, if this flag breaks down we better take notice.

The High Yield Corporate Bond Fund made a bullish move back above that resistance line and into that bullish looking flag after a spending some time below it. It's also above the 50-day EMA which is key for this Fund, but also for stocks in general.

AGG (F-fund / bonds) fell on a rise in yields, but the top of the rising trading channel is still holding as support. This could be huge for stocks. If this falls back into the channel we could see stocks continuing to bounce. But if that channel holds as support, I'd expect the bears to show back up in stocks.

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

Tom Crowley

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SPY (C Fund) (delayed)

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DWCPF (S Fund) (delayed)

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EFA (I Fund) (delayed)

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AGG (F Fund) (delayed)

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