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TSP Talk: Stocks rally early to start September, fade late

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A mixed, but mostly positive day for stocks on Wednesday as the Dow lost 48-points while most of the other indices were up on the day. We did see some late selling that wiped out some much larger midday gains, but only the Dow turned negative. Small caps had a good day, and the I-fund led as the dollar struggled again. Despite the weakness in the dollar, we saw several commodities down on the day including oil and copper, while gold was flat.

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More positive internals yesterday, and a lot of that had to do with the broader small caps doing better on the day than the more narrow Dow and S&P 500 indices.

The dollar was down again, falling below the 50-day EMA in the process, but finding support at the 200-day EMA. The rising support line did break earlier this week so the 200-day EMA seems to loom large, and if you notice, an open gap was filled at yesterday's low as well, so there's a chance the dollar bulls may try to make a move here.

The August Jobs Report comes out on Friday and estimates are looking for a gain of about 720,000 jobs, although Goldman Sachs lowered their estimate from 600K to 500K yesterday. The unemployment rate is expected to fall to 5.2%.

The ADP Employment report was a lot weaker than the estimates the other day as the 660K expected came in at 374K, so there's some concern that this will spill into August's jobs report.

Today we get the Initial Jobless Claims for the week, and that may also provide some clues.

The S&P 500 (C-fund) was flat after some decent morning gains were given up. The old resistance line held for a second straight day as support yesterday. The flat action actually broke the recent sharply rising support line off the August low, which obviously was too sharp to continue to hold for too long. Whether that means the resistance line at the top of the channel will break next, I don't know, but we do still have that open gap near the middle of that channel.

The DWCPF (S-fund) had a good day but it couldn't quite close above that prior high from June, so that four straight failed attempts to close above it. Those open gaps are quite a bit below the current levels so they may not be an imminent threat, but gaps do tend to get filled eventually.

The EFA (EAFE Index / I-fund) had a big day and with the dollar slipping for the last two weeks, it has helped the EFA hit a new intraday high. That is an excellent looking chart - a cup and handle formation, but now there are three good sized open gaps below (red), and one gap was filled with yesterday's rally (blue.)

The Dow Transportation Index bounced back from Tuesday's 1% loss, but it is sandwiched in between the 50 and 100-day EMAs. The high the other day was slightly lower than the mid-August high so the question is whether it will now make a lower low.

We saw a decent move high in commodities while the dollar fell off its highs over the last two weeks, but they have been in downtrends since the highs in June and July. Now that the dollar seems to be looking at potential support from the 200-day EMA, we're potentially starting to see commodities peak near their 50-day moving averages.

The BND (bonds / F-fund) was flat again as it trades within the range of that gap from early August. It's below resistance but above the 50-day average, so there's a good battle going on right now between the bond bulls and the bears.

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

Tom Crowley

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BND (F Fund) (delayed)

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