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Trade continues to call the shots in this range-bound market

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Stocks rallied on Thursday despite some severe selling in the overnight futures session the night before. Trade, trade, trade. That's what these moves are all about. The Dow gained 151-points, but that was actually 100-points off the highs as once again we saw some selling at the top of the range that we have been watching.

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Under the surface we have been getting some decent economic data and that sent yields up sharply yesterday, and bond prices down, and that doesn't hurt the stock market, but if the August playbook is going to continue to repeat, a trip to the bottom of the range in the coming days is not out of the question, and bonds would likely snap back. But if there's progress with China today, perhaps we'll see the range break to the upside. Progress is the key because I can't imagine a deal is close at hand.

As long as the S&P 500 closes below its 50-day EMA, the risk of a breakdown is higher than a rally to new highs. On the other hand, the "pain" trade may be on the upside since there are so many people expecting a breakdown. Again, today's trade meeting could give us more clarity.

Except for last week's jobs report rally, Fridays have been on the weaker side of late, so if we can get a second positive Friday in a row, maybe things will start to change for this range-bound market.

The stock market is open on Monday but it is Columbus Day and a Federal holiday so the TSP will not be open nor will they process transactions. Transactions that would have been processed Monday night (October 14) will be processed Tuesday night (October 15), at Tuesday's closing share prices.



The S&P 500 (C-fund) popped up to, and above the 50-day EMA on Thursday, only to fade a bit and close back below it, but it was a second straight day of solid gains. We're still watching the trading range between the 50 and 200-day EMAs and if it holds it makes the current level a little vulnerable since it is close to the top of the range. In an orderly market we would see this head back to the 200-day EMA, but that would likely be a good place to be a buyer - that is until this trading range breaks in one direction or the other.




The S-fund lagged again but was positive as it continues to flirt with recent lows. It may be trying to form a right shoulder of a head and shoulders pattern, so there could be some room to move up, although the shoulders don't necessarily have to be the same size.




The Dow Transportation index had a big day gaining 1.25%, but it is in the same situation as the small caps above.




The EFA (I-fund) rallied with the rest of the stock market but it still has a possible bear flag to deal with, and probably needs a move up toward 65 before it looks safe.




The High Yield Corporate Bond Funds have recaptured the 50-day EMA, but there's a possible bear flag here as well, which tend to break down, although there was a bearish looking flag in August that resolved to the upside.




The Volatility Index was down rather sharply and that helped it break below the recent rising support line. It is still above the 200-day EMA so investors are still paying up for volatility to protect any long positions.




AGG (bonds) broke down below that old resistance line which had been holding as support. The double top is still holding but the trend is still rising and only a move below 112.25 would break that this point.




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. Have a great holiday weekend!

Tom Crowley


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

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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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)