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TSP Talk: Stocks bounce after no surprises from the Fed

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No surprises. Stocks swung wildly yesterday with steep big early and strong gains by the close. Perhaps the best news for investors was that the Fed is still doing what they said they would, so there were no surprises, and the market had all of that already priced in. The Dow gained 383-points, which was about 540 points off the lows. Small caps retouched their lows before rebounding with the rest of the market. Bonds were down and the chart looks a little broken again.


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Internally the breadth numbers were all very positive by the close after some dismal morning readings. The Nasdaq did have 641 new 52-week lows yesterday, but that was before the Fed, and it also the near number we were seeing before the prior snap back rally started.

The S&P 500 and DWCPF small caps charts have been behaving very differently over the last couple of months, but let's take a look at the more popular S&P 500 index. We've been watching this inverted head and shoulders pattern, and we saw that open gap which, if filled, would have satisfied the right shoulder, which it has now done. Even if this inv. head and shoulders does eventually breakout to the upside, as they tend to do, it could still bounce around in that shoulder beforehand, so the bulls will want to see more upside today to take care of that as it sits just below that neckline.




The Yield on the 10-year Treasury was up, but it was kind of surprising that it didn't see more volatility like the stocks market. I always say that the bond market traders / investors are more savvy than the stock market traders / investors, so perhaps they weren't as surprised by anything that the Fed had to say?




The dollar had broken to the upside of that pennant formation earlier this week, but if you've been reading these commentaries you know that we have been talking about how it is not uncommon for pennant formations the break to one side, only to be a fake out and then reverse back down and eventually break on the other side. That hasn't happened yet, but yesterday's negative reversal may be telling us that is what is coming next. We'll see.




Watch the VIX, which closed below 20 yesterday. If it can close at 19 or below today, I would feel more comfortable about saying the bulls have taken back control.






The S&P 500 (C-fund) fell early, refilled the open gap near 4610, then ran back up to the neckline of the inverted head and shoulders pattern. The bulls need to post new highs because the bears are still lurking and will put more pressure on if the bulls stall.




The DWCPF Index (S-fund) had a nice 3% positive reversal yesterday after successfully testing the lows and that 280-day moving average. There are two other major moving averages above that would be tested on any further upside, and obviously those will make or break the theory of whether the low is in. As we saw in late September and early October, it could still chop around awhile near the lows before making a move. But the 12% plus loss from high to low was significant, and may be all that was needed to satisfy the bears before the bulls can take over again. It is the time of year that stocks tend to do well, so it would be pretty "Grinchy" of the bears to take it down again.




The EFA (I-fund) also bounced back after a higher low and successful test of the 200-day EMA. If there is a complaint here it is that a bear flag may have formed so it would be important for the bulls to push his back above the 50-day EMA as soon as possible, otherwise the bears may make another move - which seems to be the theme of today's commentary.




BND (Bonds / F-fund) has been quite choppy and about every other day I'm talking about it moving above or falling below those key moving averages. Yesterday they ended up below the averages and we may have seen a breakdown, with a chance for yields to start moving higher. I'd say this looks bad for the F-fund but every time I blink that outlook changes a bit.




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Tom Crowley



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S&P500 (C Fund) (delayed)

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DWCPF (S Fund) (delayed)

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EFA (I Fund) (delayed)

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BND (F Fund) (delayed)

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