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Post holiday reversal coming?

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Stocks rallied early on Friday, keeping that pre-holiday rally going, but we did see some selling as the day wore on and into the long weekend. The Dow ended the day with a respectable 41-point gain, while the S&P 500 gave up all but 2 of its early 16-point gain, and the Nasdaq closed in negative territory. Small caps were flat while the I-fund rallied, but may be vulnerable today.

Daily TSP Funds Return

Last week I repeatedly talked about light volume trading, professional portfolio rebalancing, pre-holiday reversals, and the tendency for that action to be reversed after the holiday. It's time to see if that tendency continues this year.

The futures were trading lower on Sunday night and into Monday. They just opened up on Monday evening and are bouncing slightly, but you can see the damage done to the S&P 500 futures during the Sunday night / early Monday trading session. Monday's evening session opened with a -26.00 point disadvantage, but as of this writing it is indicating a Monday opening of about 20-points in the red for the S&P, but of course it's a long night and anything could happen.




The negative technical action on Friday, along with the post-holiday tendency to reverse the pre-holiday action, gives the market a reason to get off to a bad start. And while I love to see technical action play out the way the charts dictate, I do see a lot of positives out there in the charts and indicators, and that is actually to my surprise. I'll get into that in the charts, but in deference to our subscribers, most of the indicators I am talking about will only be posted in the TSP Talk Plus report.

After a very volatility month of August - a month that had a reputation as one of the less bullish months, September's seasonality chart isn't any bargain either. In fact it has the worst record of any month. Not that every September is a negative month, but it has the lowest average return for any month. This chart goes back 30-years and as you can see, there are a lot of days with deeply red averages.


Chart provided courtesy of www.sentimentrader.com



Administrative Note: Our Last Man Standing NFL Pool is getting started. Pick one winner each week. One loss and you're out. As folks drop out, the one left standing wins. We have prizes for the Last 3 Standing. The first game is Thursday of this week but the deadline to sign up is before Sunday Sept. 8th's games start. It's all free. More info on how to get started is posted here.



The S&P 500 (C-fund) rallied early on Friday, hit the top of the bear flag, and pulled back. It's still above the 50-day EMA, which is a plus, but it's actually still below the 50-day simple moving average (30 days of closing prices / 30) which is currently 2945. There is an open gap down by 2890, which is where the futures hit their lows on Sunday. The PMO momentum indicator is crossing over its moving average, which is a good sign, but how much of that had to do with that pre-holiday reversal?




The weekly chart of the S&P 500 shows that ominous bear flag with lots of room for it to fall if the flag breaks down, but so far the bears have not had the will to push it to the break down point.




The S-fund had its pre-holiday rally but hit and failed at the 200-day EMA on Friday. There is an open gap to contend with down at 1362.




The Dow Transportation Index saw a big 3-day rally stall at the 50-day EMA on Friday. The 50-day EMA is still below the 200-day EMA so technically this chart is still broken.




The EFA (I-fund) was up nicely on Friday and with the dollar doing well, that's a little surprising, and it may pay the price today.




Here's the rally in the dollar from Friday where it closed at new highs again. Look at the reversal since the Trump China tweet sell-off on August 23. It looked like it was heading for new highs before that Tweet, but was stopped, and since then it has resumed its strong move upward.




The High Yield Corporate Bond Fund continues to impress and it has kept the stock market buoyant for some time. If this starts to wobble then the bears may be able to take the stock market down, but while the credit market is strong and businesses have access to money, and cheap money at that, the stock market could remain fortified in the face of anything else. Take this away and everything changes.




AGG (F-fund / bonds) was up again on Friday and the top of that red channel continues to hold as support, while a more inclined channel continues to develop.




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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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)