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Market Commentary

October 28, 2020
 
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Stocks were mixed on Tuesday, but predominantly lower if we take out the large tech Nasdaq stocks that did well.  The Dow lost 222-points, or 0.80%, and was one of the laggards.  The Nasdaq had a big day as FAANG stocks rallied in front of their Thursday earnings releases.  Bond yields fell again sending bond prices higher.  What's happening?  COVID cases rising, no stimulus, and election nerves have taken over.

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With those yield falling sharply again, the XLE financial index was down 1.8% and that sent those small bank stocks in the Russell 2000 index down, and that's puts pressure on our S-fund. 

Last March left a mark on many investors.  It reminded us that 5% pullbacks can turn into 10% corrections, and that can turn into 20% - 30% declines.  And it happened so quickly back then that, now that the number of COVID cases are rising, are investors thinking, sell first, ask questions later?

It wasn't like it was a nasty day yesterday, but late in the day when the new case counts were posted, we did see more selling, and that extended after the bell where there was more selling in the futures after hours after headlines of restaurants being closed again in some cities.  I doubt all investors will fall into the trap this time (a sell at any price reaction) but some will and that will have a negative impact for stocks.  Of course that could set up opportunities.

The question is, who will be brave enough to buy into this?  I think they will be rewarded, but maybe not right away and that makes it a scary trade.  Being patient may pay off, but as we have seen before, the rebounds off of these lows can be explosive and with our deadlines we can easily miss them.  And if you wait for a pullback, you risk not getting one.  Look at these rallies off the late July and mid-September lows.  You had to buy a 1 or 2 day pullback or you never got in.

                 


And guess what?  Here's the pullback everyone who missed those rallies was waiting for.  They are tough to buy because you never know how low it can go.  And add to that, we are seeing some technical support lines give way, while a couple are still holding but getting close to failing.

Microsoft posted a very strong earnings report and was rallying after hours, but it started to fade again when the futures were dipping.  So even good companies are getting hit by the new wave of COVID fears.

A reminder that Thursday is the big FAANG reporting day - after the bell.  You can read yesterday's commentary for my paranoia theory.  :)  Also, social media company CEOs  from Facebook, Twitter and Google are testifying before congress today to defend recent censorship claims.

Also tomorrow, we get the Q3 GDP estimate, which is supposed to be near +30%.  Interesting.  The weekly Initial Jobless Claims are expected to be about 760K.


The S&P 500 (C-fund) tried to rally early, but didn't get very far and the bears kept the pressure on all day.  By the close the new COVID case counts came out and that pushed the indies toward the lows of the day.  Right now there is some technical analysis at play as the S&P 500 traded directly between the 50-day Simple average (orange) and the 50-day EMA (purple.)  The futures are indicating that we may be breaking below that 50 EMA in the morning, but like Monday, it's the close that matters.  There's an open gap in the 3510 area.

         


The DWCPF (S-fund) was down a half of a percent and closed below that old September resistance line for the first time since.  This still looks like a bull flag but we probably wouldn't want to see it stretch down to the 50-day EMA because, like the S&P 500, once the flag gets too long, it no longer acts like a flag.

        


The EFA (I-fund) was down but a weak dollar helped.  There's an open gap just below yesterday's low, and a rising support line near 62.80, which could be the downside targets.

         


The VIX closed at its highest level since early September.  Ironically the S&P 500 traded in fairly tight range yesterday if you look at the size of the candlestick in the S&P 500 chart above.  Still, these are bets on future movement in the S&P 500 and with the election coming up, it's not a surprise. 

         


BND (F-fund) rallied yesterday, keeping the short-term rebound going for a third day, but it is still below some serious resistance, and the only thing that may keep the rally going is more COVID fears.  Otherwise the chart may look to rollover again here at resistance.

        


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

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

Tom Crowley


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Chart provided courtesy of www.sentimentrader.com
 
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