TSP Talk Blog

Stocks opened higher on Thursday, as you might expect after Wednesday's positive reversal day, but the bears were not about to let the bulls make new highs all that easily. Stocks drifted lower into the close and the Dow ended the day down 52-points. Small caps and the Transports lagged again, while the Nasdaq, despite negative breadth, was up on a strong day for Microsoft.

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The leading sectors yesterday were Healthcare, Utilities and REITs, so it was more of a defensive day while the growth related stocks like the small caps, reversed hard to the downside after giving up some nice early gains.

After the post Fed hyper trading and positive reversal day on Wednesday, we saw some follow-through on Thursday morning (typical) after the overseas markets rallied overnight in sympathy with our late rally on Wednesday (typical), and there was another attempt to test the recent highs. Once the European markets closed, exhaustion kicked in for U.S. stocks and they started a steady decline in the afternoon, and closed at the lows of the day. That's what I was talking about in yesterday's report about allowing the post-Fed trading to play out, and then let the market tell us what it wants to do. I said, "At this point the market has moved on a reaction to Fed, and then came a reaction to the reactions, and today [Thursday] we should get more of a reasoned reaction to what the Fed's actions actually means for stocks."

Unfortunately, the action wasn't all that clear since we traded in a similar range on Thursday, to the range we saw on Wednesday, so today may be the deciding day, although Friday's have been leaning on the negative side in general with investors worried about holding into the weekend news headlines.

While investors try to put all of the clues together and wait for the next catalyst, we still have a double top in the S&P 500, along with open gaps below, so the bulls have some work to do despite being a stone's throw from all-time highs.

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The S&P 500 (C-fund) took off at the opening bell on Thursday, following up on Wednesday's positive reversal day, but it hit a wall again just as the European markets were closing, and the morning gains were gone. So, we're in the same boat that we've been in for the last week where a double top is creating resistance, and the open gap is still there calling out to be filled.




The S-fund poked its head above the recent highs but failed and that "flat top" remains intact. There is some rising support coming up from below and whether that holds or not could be a key for what happens next.




The Transportation Index was down yesterday and the open gap overhead was pulling it up but it could not get filled before reversing back down and closing with modest losses again.




The EFA (I-fund) filled the open gap from last Friday (blue box) but there are red open gaps all over this thing. The action has been good over the last several weeks, but it may be running out of steam after the nearly 10% rally off the August lows to the recent highs.




The German DAX is interesting in that it has rallied strongly over the last month but it is against some strong resistance. If it breaks out it could be a monster move with that big inverted head an shoulders pattern testing the neckline. The problem is, Germany has no growth in their economy and negative bond yields, so why would this breakout?




AGG (bonds) was up again as it tries to move up off the recent lows. We've noted that tough resistance area, which continues to hold, so the battle over the next few days may be between that resistance and the support from the 50-day EMA and the rising support line.




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Thanks for reading. Have a great weekend!

Tom Crowley


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