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September has been good to stocks, but here comes R'october

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Stocks opened higher on Friday but more news on the China trade front sent the indices lower and by the close we saw moderate to sharp losses across the board. The Dow gave up 71-points, or just 0.26%, but the Nasdaq and the small caps each lost 1% on the day while the S&P 500 lost a half of a percent. Bonds were up modestly.

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The I-fund was given a gain but again that was a timing thing with much of the U.S. stocks losses coming after the European markets closed, plus the dollar was down slightly on the day. The intraday downside trigger on Friday came after the White House said they were considering limits on U.S. investment into China. Obvious that is a provocative disturbance to the ongoing trade negotiations between the two countries.

The continued impeachment talks contributed but as I mentioned last week, this type of talk has been going on for three years and the market, while reacting with some volatility in the short-term, has ignored the political noise for the most part and investors have continued to buy those dips. Will the dip buyers show up again? Will it be different this time? Of course it could be, but as we also mentioned, when President Clinton was impeached in 1998, the market did just fine going forward once the initial reaction passed. The democrats are talking about a possible vote on impeachment in November so it will remain in the headlines for a while.

Earnings season will be starting soon and perhaps the market can get past that DC noise, but of course the China trade deal is still going to have an impact on earnings. It has been a good excuse for companies who have missed estimates or that are guiding lower for the next quarter, and that is likely the case for many of them.

The S&P 500 (C-fund) was down on Friday but it has been successfully holding at the 50-day EMA. The PMO indicator moved below its moving average and that is an intermediate-term warning sign, but it can also be a sign of being oversold in the short-term. The initial crossover in July preceded a relief rally that lasted a week or so, but you can see that it led to more serious selling later. The large open gap that I have been obsessing about nearly got filled on Friday, but there are still 5-points of open gap left before it gets filled at 2940.

The S-fund Took another 1% on on Friday as the love / hate relationship with investors continues. One day the small caps are the darlings. The next they're the villains. The 200-day EMA is being test now after closing just below it on Friday.

The good news for the Dow Transportation Index is that it is hanging around the support lines from the 50 and 200-day EMAs. The bad news is that it is creating a bear flag in the process of hanging around that area. This does not look good to me, particularly with the 50-day EMA appearing to be rolling over again before it could move back above the 200-day EMA.

The EFA (I-fund) has been holding up a little better than the U.S. indices recently, although it still lags for the month and year. This is just a recent relative strength change but it's hard to make anything of it just yet. The bull flag looks better here however, than on the U.S. charts.

AGG (bonds) has been struggling to move above that rising resistance line currently near 113.50. There are couple of open gaps above there that should be a lure, but the slow rising resistance line may make it a slower process. There is a possible bull flag forming that may force the issue, however.

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

Tom Crowley

Posted daily at TSP Talk - Market Commentary

The legal stuff: This information is for educational purposes only! This is not advice or a recommendation. We do not give investment advice. Do not act on this data. Do not buy, sell or trade the funds mentioned herein based on this information. We may trade these funds differently than discussed above. We use additional methods and strategies to determine fund positions.

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