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TSP Talk: Great morning for stocks - afternoon weakness

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Stocks saw strong gains on Thursday morning but a weak afternoon of trading, and close, kept investors on their toes. Small caps led on the upside but all of the indices closed well of their highs. Bonds were down as yields rallied. The dollar was flat after recovering from early losses. The Transports were down on the day, and as you'll see, the chart looks very vulnerable.

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Reports of progress on the the debt ceiling negotiations seemed to give the market a sign of relief in early trading. The new debt deadline, if passed on Thursday evening, would be in early December so we'll have to go through all of this again in a couple of months, even if they do make the deal.
The September Jobs Report will come out this morning before the opening bell. Estimates are looking for a gain of about 450,000 jobs and an unemployment rate of 5.1%.

The prior report missed by a half a million jobs, and I would guess that won't happen in back to back months, unless something is really wrong, otherwise some analysts who make these projections, need to be fired.

The late weakness may have had something to do with investor's memories of the prior August jobs report, and the sell off that followed after it, and also the apprehension over the debt ceiling vote on Thursday night.

Despite the late sell off, we did see big gains, and the Nasdaq held up very well despite the rally in yields, which has meant trouble for the big tech stocks in recent weeks. The bull flag on the 10-year did break to the upside and closed near the highs of the day, perhaps another reason for stocks coming off their highs on Thursday.

The dollar was down but recovered some of the larger early losses after backing and filling in Wednesday's open gap. This looks bullish for the dollar but I continue to see those red open gaps that should eventually get some attention below.

The price of oil has become one of the main focuses on Wall Street. The strength is a good sign for the economy, and it has been a money maker for traders, but as it flirts with $80 a barrel, sending gas prices up with it, it may become a drag on the stock market if it continues to move higher. It fought off an early sell off on Thursday to close back above the July high, but there is some possible resistance near $78. A pullback to $75 and the lower end of the rising channel may ease investor's concerns for a couple of days. A slow climb up toward $100 would be more easily digested than a spike up there in a couple of weeks since it has already climbed 30% in just 7 weeks.

This is a tricky area for the stock market as we had some decent moves higher, but some negative reversals that kept the indices in their downtrends. The Transportation Index closed in negative territory giving up all of its big early gains. That, and the credit market, need to perk up again or stocks could easily flip back over.

The stock market is open on Monday, but the TSP is not.

From "Some financial markets will be closed on Monday, October 11 in observance of the Columbus Day holiday. The Thrift Savings Plan will also be closed. Transactions that would have been processed Monday night (October 11) will be processed Tuesday night (October 12), at Tuesday's closing share prices."

The S&P 500 (C-fund) had some great early action as it gapped up, and ran right through its 50-day EMA. Unfortunately it gave that up by the close creating a negative reversal pattern, perhaps because of the vote on the debt ceiling Thursday evening, or this morning's jobs report. The highs of the day nearly filled an open gap (blue), and the top of a gap can sometimes act as resistance. Now there's an open gap between Thursday's low and Wednesday's high (red.). It looked good, but it's very questionable. The jobs report may make or break the downtrend.

The DWCPF (S-fund) had a solid 1.53% gain yesterday but it was up a lot more (+2.26%) at the highs before things rolled over. It did close just above the 50-day EMA, but not by much. There's a large open gap down near 2200, which may act as support again, now that its back above that resistance.

The EFA (EAFE Index / I-fund) was up and opened a gap like the U.S. indices did. There is some resistance near 78 so that will be the first hurdle to climb on Friday. It looks like there's room for more of a relief rally, but this chart only looks good if you're calling a bottom at the 200-day EMA, because this is still in a nasty downtrend.

The BND (bonds / F-fund) broke down again from another bear flag, as the yield on the 10-year broke out to the upside from a bull flag. Bonds seem to have confirmed a breakdown below the 200-day EMA so I think we can say they are in a bear market, although what you call it doesn't matter. The surprise was that stocks rallied with yields breaking to the upside.

The Dow Transportation Index was one of the more troubling looking charts after the negative reversal and failed breakout above the moving average. It needs to bounce back quickly or we may be calling this a big bear flag as well, which could mean sub 14,000 prices in the coming weeks. Do or die here.

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Thanks for reading. Have a great holiday weekend!

Tom Crowley

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