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Seasonality and politics keep pressure on the stock market

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Stocks were down on Thursday, and again a lot of it had to do with the hearings on Capitol Hill and impeachment talk, which Wall Street does not seem to like, but the losses have been fairly muted. Like on Wednesday, the initial selling led to some buying in the afternoon so the dip buyers are still lurking. The Dow lost 80-points with small caps taking a bigger hit, but this is late September heading into October, and this action seems about right.

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More political wrangling in DC gave stocks something to worry about yesterday, but as mentioned, seeing volatility pick up this time of year is nothing new. We had such a strong first half of the year and the indices may need some consolidation or digesting before any 4th quarter rally starts, and it has been going on since the highs in July. But at some point in October we should get a good opportunity to buy. That is, unless the President is impeached where it could get a lot worse than just digestion.

The China Trade talks are now set to resume on October 10th, but I don't think the Chinese are planning on making any deals before our next election 13 months from now. So I expect this on again, off again trade negotiations to drag on and stocks will be jerked around by every related headline in the interim. Investors don't want to be out of stocks if something is announced and that is likely keeping a bid under the market, unless there is a real breakdown in the negotiations. I don't follow the Chinese economy very closely, but I would think the one thing that would bring an earlier deal would be if they relent to their weak economy, but I think they will be more patient than that.

The S&P 500 (C-fund) was down modestly on Thursday, and for a second straight day we did see some buying when the index flirted with the 50-day EMA. Technically, the chart looks fine. Since the early September highs we've just seen a typical double top pullback, and so far the 50-day EMA is holding. I really would like to see that gap get filled near 2940 before it takes off again, just so we're not constantly looking over our shoulder as a potential / eventual target later on. Let's get it over with.

The S-fund lagged on the day with a steeper loss of about 3/4 of a percent, and the on again, off again flag formation is off again. The 200-day EMA is in the picture and just below current levels, and here too we have an open gap and it would be sure nice to see it filled before this leg down bottoms.

The Dow Transportation Index successfully tested the 50 and 200-day EMAs again while taking on a small loss Thursday. It looks like it wants to make a low here, but at the risk of sounding like a broken record (that's a circular vinyl disc that plays music, for you younger folks :-) there is a large gap below that may need filling.

The EFA (I-fund) was up on the day but so was the dollar so there was some added pressure. The bull flag appears to be intact. There's open gaps all over this chart but that's the nature of the I-fund since the international indices trade over night while our market are closed.

AGG (bonds) was up Thursday as the yield on the 10-year Treasury Note fell below 1.7% again. It (AGG) has had a nice run up since the mid-September lows but seems to be struggling trying to recapture that 113.25 area where it peaked earlier this week.

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Thanks for reading. Have a great weekend!

Tom Crowley

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