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TSP Talk: Light volume index pushing

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Stocks opened slightly higher on Thursday but we saw some selling just after the opening bell, and the selling seemed to intensify after a Supreme Court ruling regarding New York State and President Trump's taxes was announced. The reaction seemed knee-jerked and buyers stepped in, at least in some indices. The Dow lost 361-points, but once again the tech heavy Nasdaq seemed bullet-proof and closed with a solid gain. The S&P was down 18, gaining back most of its earlier 54-point loss, and small caps took another hit as they continue to lag.

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Whether it was the Trump taxes ruling that gave stocks a reason to pullback or not, the market has been chopping back and forth the last several sessions after that 5 day rally surrounding the holiday, and some of the indices appear to be stuck in a narrow trading range between support and resistance.

As we talked about in Thursday's commentary, the market can be pushed around more easily by the headlines when trading volume is light, and we saw that yesterday.

The initial jobless claims came in lower than expected (1.31M), which is a good thing, and the continuing claims were down about 700K, but the numbers are still quite elevated with 18 million still filing for benefits.

One of the more tangible reasons that may have caused stocks to move lower was yet another drop in bond yields. Yesterday's close was the lowest closing yield for the 10-year Treasury since April.

Either this is a bet against the economic growth by the bond market, or they just feel that the Fed is going to keep rates pinned near 0% for a long period of time, and somehow getting 0.6% in bonds appears appealing to some. One other negative effect these low yields are having is on the financial stocks. The XLF Financial ETF was down over 2% yesterday. Some of the major banks start reporting earnings next week.

While that weighs on investors' minds, the credit market is still holding up rather well, even with yesterday's loss. This double bull flag looks positive for the credit market, and as long as the credit market is healthy, the stocks market should be fine. If this does decide to test the lower end of the large bull flag (red), that would be a significant loss, and stocks would likely pullback, but it would still be a bull flag and traders do see that.

I'd prefer to see the 50 and 200-day averages hold an any further pullback, rather than see it test the bottom of the flag.

The large tech stocks continue to surge. The behemoth Amazon is up about 25% in the last week and a half, if you can believe that, and the Nasdaq 100 is now about 20% above its 200-day average, which is extreme. The question is, when it does inevitably start to pull back, will investors jump into small caps and other beaten down sectors, or will it take the whole market down with it?

The S&P 500 (C-fund) was down on the day but remains within a tight range - below 3180 and above about 3140, although yesterday headline did push it below that briefly. It's hard to say this looks bearish while it remains above key support and near recent highs, but it probably wouldn't take much to change things with that support being tested again.

The longer-term chart brings in that other resistance line that I sometimes forget about when looking at the more zoomed in charts, like above.

The DWCPF (S-fund) lagged again, and this is a case of -- when it's hot, it's hot. And when it's not, it's not. Right now it's not, but as I mentioned above, we have to wonder where investors will put money if they finally start selling those overly extended large tech stocks. Will they buy back into the small caps?

The EFA (I-fund) was down and the dollar was up, and that was a bad combination for the I-fund, but if you remember the I-fund was owned some fair value after Wednesday's undervalued share price. It remains above the bull flag, which it broke above on Monday.

The BND (bond ETF) had a big day as yields plummeted as we talked about above. This one continues to baffle me, but due to its recent rally, I'd be less inclined to use the F fund right now. I'd wait for a pullback.

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