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TSP Talk: Market stabilizes despite no stimulus deal in sight

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Stocks were mixed and choppy on Friday but by the close the bulls won the battle and made a positive reversal pattern in the process, creating a possible good set up for stocks early this week. No one seems overly excited to buy stocks right now, but that may be what keeps the market climbing the wall of worry, and there certainly is a lot of worrying out there. The Dow lost 28-points but most of the indices closed with solid gains.

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Despite all of the uncertainty revolving around the election, the stimulus deal, and the rising COVID cases, the market has been able to remain fairly buoyant, and this week we should find out if the recent pullback was just another buying opportunity. The futures did look a little wobbly on Sunday night suggesting a weak open on Monday, but so for buyers have been showing up at support areas recently.

The internals were strong on Friday, although nothing too lopsided. Both the NYSE and Nasdaq saw advancing volume lead declining by about a 3 to 2 margin The Equal Weighted S&P 500 Index looks very intriguing. Although this index contains all of the stocks that are in our C-fund (the S&P 500) it is weighted differently and has been acting more like our S-fund, being a broader representation of the market and not heavily weighted with the larger tech companies.

However, if big tech, can take the lead again, that could change. We will get earnings reports from the big tech names this week - Apple, Amazon, Facebook and Alphabet (Google.) This will be quite important because the Nasdaq and big tech has been the driver for the market rally for a few years now.

There is a tendency to see a sell the news reaction after they report, but often the Nasdaq and the market in general is running up into these reports ("buy the rumor"), and then the "sell the news" is profit taking. This time we're seeing the Nasdaq already in the midst of a pullback so perhaps this will be a "sell the rumor, buy the news" situation? We'll know soon enough.

It's getting uglier out there in the presidential campaign, but we all expected it, and the market seems fairly unfazed. As I've mentioned before, I really don't think the market cares who wins. The polls suggest Biden has a big lead, and the market is holding up well with that info. If Trump does win, its business as usual and the market would be fine with that as we saw over the last 4 years. Even if they're counting votes for weeks, at least politicians will be tied up and not making new regulations for Wall Street. Big money on Wall Street gives to both candidates to cover their butts. Fortunately or unfortunately, depending how you look at it, even civil unrest after the election may not be a concern for investors, as we saw over the summer. I reserve the right to change my mind if the charts tell me to. :^)

The S&P 500 (C-fund) created a positive reversal day on Friday and the chart is looking pretty good as long as that bull flag breaks to the upside, and depending how thick your crayon is, it may have already started to break out. We know we are in a time when a headline can ruin everything, but perhaps this chart is telling us that the headlines will be favorable. The tail wagging the dog so to speak, which is what you're hope the charts are doing for us.

I will leave this up while this inverted H&S pattern continues to play out. If we see a breakout from that bull flag, I'd say we'll be done with it since the upside target was already reached (3425), and that held as support on the pullback test.

The weekly chart did create a lower high and a lower low, which isn't good, but it closed well off the lows for the week, and above the February highs and the rising support line, so the bulls appear to still be in charge.

The DWCPF (S-fund) found support at a very clean line; the top of the September highs. It almost looks too clean - suspicious, but it is what it is at this point, a bull flag that held support and reversed higher. It hasn't broken out yet so perhaps not out of the woods yet, but a bull flag does tend to breakout eventually.

The dollar (UUP) was down sharply again, backing down from the resistance we pointed out on Friday, and that helped the I-fund to a healthy day and that looks like it may be a breakout above the short-term descending resistance line.

The VIX was down 2% but remains above the 200-day EMA. The 25 - 30 range held for another week so while we may have to expect continued wider than normal swings in front of the election, so far it has been contained.

BND (F-fund) bounced back on Friday after six straight down days. It is back testing the breakdown area, which may now act as resistance. I don't see a whole lot of positives here for bonds, except for a possible dead cat bounce in the short-term.

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

Tom Crowley

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