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The pre-holiday rally fades post-holiday, and September gets off to a bad start

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Stocks opened the post holiday week on a down note with the Dow falling 285-points, or 1.08%. Boeing was a drag on the Dow and the S&P 500 held up a little better falling 0.69%, but the Nasdaq, small caps, and the Transports all lost over 1% on the day. The I-fund outperformed again, to my surprise, even after another rally in the dollar, although the dollar did reverse down and lose much of its early gains.

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After an exhausting month of August with all of its choppy, volatile action, we started September with a negative tone. We kind of expected that given the strength leading into the long holiday weekend, as holiday reversals are not uncommon. The ISM Manufacturing Index for August came in at 49.1%. Estimate were about 51.3%. July's number was 51.2%, and the dividing line between expansion and contraction is 50.0%. The 49.1% reading for August is the first sub-50% reading in three years and the lowest since January 2016, although stocks didn't always perform badly after the first sub-50% reading in two years.

Obviously a contracting number is not a good sign for the economy, but the Fed watchers may see this as an argument for a 0.50% rate cut later this month. The next FOMC meeting is scheduled for Sep. 17 - 18, which is just two weeks away.
The August Jobs report comes out this Friday and estimates are looking for a gain of 145,000 - 165,000 jobs, and an unemployment rate of 3.7%.

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) opened lower yesterday morning but quickly filled last week's open gap near 2892 and that price held all day. That's a good sign but today's another day. The big bear flag has been a concern for a couple of weeks now, but it just keeps consolidating, and the bears may miss an opportunity to break it down, as bear flags tend to do. The 200-day EMA held firm all month in August, and that's something. Unfortunately most of the other indices have already given up their 200-day EMAs.

The S-fund is one of them as it spent most of August below the 200-day EMA. It also filled its open gap and closed right on top of the bottom of the gap after falling below it intraday, so this remains a little more vulnerable.

The Dow Transportation Index is also below its 200-day EMA and the 50-day EMA held on its last attempt to move above it. The open gap was filled yesterday and it reversed off the lows, but like the S-fund chart, there's a lot of work to be done here for the bulls.

The EFA (I-fund) held up well for some reason, and that reason was not the dollar which was also up. Technically the chart is still in some trouble after failing at the 50 and 200-day averages last week.

The dollar rallied but reversed hard off the highs. It's now above that blue rising trading channel so it will be interesting to see if the top of that channel now holds as support.

AGG (F-fund / bonds) was flat after an early rally failed. It continues to ride the top of that red rising trading channel.

The 2/10 year Treasury yield curve steepened a bit over the last couple of days so at 0.00, it's basically flat (not inverted) at the moment, but still on the cusp. A rally up to the old breakdown point is possible, and stocks would probably applaud that, but I'm not sure what the catalyst would be except for maybe some over bought conditions in bond prices.

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:

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

Tom Crowley

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