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Consumer Confidence and politics knock down stocks

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After a strong start, September is starting to show its true colors as a month that in generally not a good friend to stocks. The economic and political news headlines led the day and by the close we saw losses across the board, with many indices producing negative outside reversal days, which are not great signs for the short-term. The Dow lost 142-points, or 0.53%, but the Nasdaq and small caps took losses well over 1%.

Daily TSP Funds Return

Consumer Confidence came in a lot lower than was expected (125.1 vs. 134.0 expected) just after the opening bell setting the negative tone for the day but it wasn't until President Trump was speaking at the U.N. that stocks started to trend to the downside. He slammed China for taking advantage of the U.S. for decades on trade, slammed Iran for their actions in Saudi Arabia, and generally let the world know what was bothering him, and the stocks market reacted negatively. But it was the hawkish China trade comments that got investors concerned.

We saw another round of selling after Speaker of the House Pelosi announced that a formal impeachment inquiry will be initiated as she relents to the growing demands for impeachment from democrats, after a whistle blower complained of a possible unspecified commitment to a foreign leader (Ukraine president) regarding Joe Biden .

Then we actually got a slight bump in prices after Trump later said he was planning to release the transcript of the infamous phone conversation with the president of the Ukraine, but that mid-afternoon rally soon faded.

What does all this mean? It sounds like typical October volatility is getting started a little early. Since the Senate would have to have 2/3 of its members vote for impeachment for it to happen, it seems like a futile endeavor since Republicans have the majority in the Senate. If it passes in the House it would certainly be a black mark for Trump, but that's even questionable because some vulnerable red state democrats may not be onboard. It's also questionable whether this would hurt or help Trump's chances of being reelected in 2020 election, which is why Pelosi has been hesitant to act, but what it means for the stock market is probably elevated volatility while it plays out.

The market rumbled in 1998 after the House began an impeachment inquiry into Bill Clinton, but after some initial volatility, and a low made in October that year, stocks actually rallied another 28% over the next 10 months. That means we could be setting up for some potential good trading opportunities for us but some short-term anxiety for the buy and holders.

Add to all of this that 3rd quarter earnings report will start coming in a couple of weeks so get ready for some fireworks in October. As I mentioned yesterday, I am hoping for some volatility to give us good buying opportunities. I'm out of IFTs for September so I don't want to see the market snap back too quickly.



The S&P 500 (C-fund) was up early on Tuesday and the reversal created one of those negative outside reversal days where the high and low of the day exceeded those of the prior day, and the close below Monday's low made it a negative outside day. We have had our eye on that open gap and the top of the old bear flag as possible support for any pullback, which are both sitting near 2940. You could see some buying kick in there, but an overshoot on the downside could trigger some panic selling, and that sounds about right for an October. The question is whether that sets up the 4th quarter buying opportunity, or another weak 4th quarter as we saw in 2018.




The S-fund had a bullish looking flag forming, but the equivalent formation on the Russell 2000 made it look like it was getting too steep to be a flag. Perhaps it was. The DWCPF closed below there 50-day EMA for the first time since this rally began in early September.




The Transportation Index has been leading on the downside, and it was actually acting quite strong in early trading on Tuesday before the fireworks began and it fell back below the 50 and 200-day EMAs. There's large open gaps above and below the current level so we could see some wild swings in the weeks ahead.




The EFA (I-fund) was down modestly but the overseas markets were closed when Pelosi announced the impeachment inquiry so some weakness could rollover into today's prices.




The yield on the 10-year Treasury fell again and while we may have seen the lows in yields for a while, a test of those lows wouldn't be a surprise.




AGG (bonds) is up on the falling yields and the chart has now broken back above those key resistance lines that we have been watching. This is possibly just a temporary run to safety while the political news plays out. The other key safety trade, gold, was up as well.




Read more in today's TSP Talk Plus Report. We post more charts, indicators and analysis, plus discuss the allocations of the TSP and ETF Systems. For more information on how to gain access and a list of the benefits of being a subscriber, please go to: www.tsptalk.com/plus.php

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

Tom Crowley


Posted daily at www.tsptalk.com/comments.php

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SPY (C Fund) (delayed)

(Stockcharts.com Real-time)
DWCPF (S Fund) (delayed)

(Stockcharts.com Real-time)
EFA (I Fund) (delayed)

(Stockcharts.com Real-time)
AGG (F Fund) (delayed)

(Stockcharts.com Real-time)