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Market Commentary

January 17, 2020
 
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Stocks seem to be in melt-up mode - something folks were talking about as a possibility in 2020, but I was skeptical because it's rare that something talked about widely actually happens.  It's usually more of a surprise, but apparently the only one who was surprised was me.  The Dow tacked another 267-points as we head into earnings season, and a long holiday weekend.

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Today is the final day of an options expiration week which do have a positive bias while post-options expiration weeks can be a little negative, or at least less bullish historically.  But in a market like the one we are in, we know momentum can stomp on any tendency.

Based on the January Barometer theory, the start to this New Year is probably telling us that 2020 will be a good one for stocks, but that doesn't mean there won't be rocky periods in there and, because of that dreaded yield curve inversion in 2019, a possible economic slowdown, even if we don't get an all out recession.  Being an election year we'd expect the Trump administration to do what it can to avoid that, and we saw that with tax cuts 2.0 being talked about this week.  Ironically the last major bear market came during an election year, but there was not an incumbent on the presidential ticket that year.

The other day I was through a casino with my wife and we saw a small crowd gathering around an older woman who was playing a slot machine that was paying off.  If you've seen some of the newer machines you know that one of the ways to win is that they give you "free spins", and so the machine just keeps playing for you until they run out, and the more you win, the more free spins you get, so the woman just had to sit there and watch. 

Well this woman had a few drinks and she was quite emotional as her win was up to $22,000 and rising when we first walked by,  while these free spins kept playing automatically for her. 

Fast forward about 90 minutes and I walked by again  The crowd had grown and I could see her total was now over $40,000 and still going.  She didn't have to hit a button the whole time as the free spins kept coming.

That's kind of how I feel about the market right now.  When you're in and winning, you just watch with excited disbelief as stocks go up almost daily, day after day.  While the crowd who is on the sidelines just sits and watches, wishing it was them. 

Although there are some similarities, of course the stock market is not the same as a slot machine, and the folks watching knew that when this woman finally got paid for her luck, she was likely going to dump a lot of those winnings back into the machine.

For those of you in the market and making money, I applaud you for your bravery, and I have to admit that I am envious - just like those folks gathering around that slot machine.  In your case I hope that you are willing to be nimble.  Watch the support lines and don't look away for too long because these kind of runs can end with a thud as we have seen over and over throughout the years.  For every percent the S&P goes up from here, I'm that much further from being interested in buying.  So I wait.

We have a long weekend ahead of us, and it's exhausting watching this slot machine continuing to spin its wheels without me, so I'll just post a couple of charts below today and try to clear my head until next Tuesday.

From www.tsp.govHOLIDAY CLOSING: Some financial markets will be closed on Monday, January 20 in observance of the Martin Luther King, Jr. holiday. The Thrift Savings Plan will also be closed. Transactions that would have been processed Monday night (January 20) will be processed Tuesday night (January 21), at Tuesday's closing share prices.



This chart of the S&P 500 (C-fund) goes back to mid-2017 and it shows that these "melt-ups" happen, but they don't last forever.  The level of extension above support and the moving averages is extreme, no matter how you slice it, but there's no law that says it has to stop anytime soon, although clearly risks are getting higher.

         
 

The AGG (F-fund / bonds) was down early on Thursday and was able to fill that small gap and rebound to close back above the breakout area.  Remaining above that resistance line is key because...

       


... breakouts can be the start of something explosive as we saw in October in the S&P 500.  Bonds will not do anything similar returns-wise to the S&P 500, but the chart pattern could be something similar.

        
 

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 weekend, and enjoy your holiday! 


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Chart provided courtesy of www.sentimentrader.com
 
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