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TSP Talk: Bulls jump on bears' attempt to sell

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Stocks struggled for most of the day on Thursday but by late afternoon bulls couldn't stand to go into the close without doing some buying, so we saw a surge into the close with stocks closing at the highs of the day. The Dow was flat mostly weighted down by a 10% loss in IBM, but we saw gains in most of the broader indices. The Transports led on the upside with a 1% gain. Bonds were down again, making new lows in the process. The dollar rallied putting pressure on commodity prices and the I-fund.

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After the bell there was a bit of a shake up as Intel, Facebook, and Snap were all down sharply, and that could put pressure on the Nasdaq today, which actually snapped back nicely from Wednesday's weakness. The futures gave up most of yesterday's gains shortly after the closing bell on the news, so we'll see if that rolls into Friday's opening.

Internally we see the Nasdaq outperformed, but you can see the fatigue in the NYSE. Despite all of the green in the indices, there were more stocks down on the NYSE than were up, and the volume was nearly 2 to 1 in favor of declining volume.

The yield on the 10-year was up again, this time nearly breaking out of the top of an F-flag. I have been suggesting that F-flags tend to break down, so that would be news to see this accelerate to the upside from this formation.

The dollar reversed up after its recent 6-day pullback. It was likely due for some relief so we'll see if the dollar bulls can follow through on Thursday's rally. Oil, gold, silver, bitcoin, copper, etc., were all down on the dollar's strength.

As we head into October 22, I'll remind you of a chart I posted the other day which suggest there could be some short-term headwinds, according to this seasonality chart that goes back to 1928.

The S&P 500 (C-fund) hit new highs after a seventh straight day of rallying. It is at some resistance but it was able to trade above the prior highs, so we may have seen an attempt to take out the short's (those betting against it) stops. That can lead to a fake out breakout, but of course it is also possible that this is the rush to get into the pre holiday season rally. The indicators are overbought so we'll see what kind of power the bulls have from here, particularly as we head into that short-term negative phase on the seasonality chart.

The DWCPF (S-fund) has continued to move straight up with barely a blink since the October 11th low. The open gap is apparent to everyone, and everyone knows gaps tend to get filled, but so far there's been no profit taking. The top of the trading channel is only about 10 points above yesterday's close so we'll see if the bears have any interest in getting front of this freight train. You can see that other rallies up to this area turned around rather quickly.

The EFA (EAFE Index / I-fund) was down on the day, mostly because of the early weakness in the U.S. indices when the European markets were still open, and because of the pop up in the dollar yesterday. There's rising support and descending resistance converging in the 80.50 area, just below that overhead open gap.

The BND (bonds / F-fund) was down again - stocks up, bonds down - has been the broken record over the last week. But there is some support at yesterday's lows so we'll see if there's any temporary relief on the way.

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Thanks for reading. Have a great weekend!

Tom Crowley

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