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Market Commentary

January 22, 2020
 
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Stocks were lower on Tuesday on news that a traveler from China to the U.S. was diagnosed with coronavirus.  Perhaps overstated, but the market has been looking for a reason to pause, but even this little setback was minor.  The Dow (-152-points) took a slightly bigger hit percentage-wise, and Boeing was the culprit again.  Small caps and particularly the Transports lagged, while bonds rallied strongly - as far as bond market moves go. 

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The coronavirus outbreak in China triggered the Asian markets, mostly China and Hong Kong, to sell off fairly sharply, and that set the tone for the day as investors were reminded of the economic fallout from the SARS virus back in 2003.  With stocks flying high to start the year, investors may have been looking for a reason to sell, and perhaps this may be the start of something, although I'm sure the bulls won't go down without a fight.  

Since early October every 2 to 3 day dip has been bought and I suppose it would be the definition of insanity to expect anything different this time, but the indices are stretched much more now, and investors are also on the extreme side of being bullish, so the bulls may be pushing their luck if they expect it to continue much longer as this rally gets deeper into its 4th month.  The dip buyers will remain emboldened and continue buying as long as those support lines are holding - until they get burned.

Netflix and IBM were the big name earnings reports after the bell yesterday and both were up in after hours trading, and that could be a positive catalyst to start the day today, although I'm sure investors will be watching those Asian markets for any signs of more serious selling on the virus concerns.


Update:  The overnight futures just shot up for some reason, so we apparently we won't have to live through the disaster of a two-day pullback.  I hope the sarcasm came through. 



The S&P 500 (C-fund) came off Friday's all-time highs with a minor pullback yesterday, after the chart hit the top of that rising trading channel.  Even a move to the bottom of the channel - keeping the trend alive - would result in a loss of about 3%, which is nothing, but if the support line of the rising channel breaks there isn't a whole lot of support below that.  It's too premature to even go there, but I'm trying to think what might give investors a reason to finally take some profits.  We're going on 4 months now with really only that two day dip in early December that dished out any discomfort for investors, and that's quite unusual.

         


The DWCPF (S-fund) had that negative reversal day on Friday and that was followed by a moderate dip on Tuesday, but the lows did hit one of the old resistance lines and held.

       


The Dow Transportation Index took a meaningful loss on Tuesday with airline and railroad stocks taking a big hit.  We see a possible failed breakout but watch 11,000 down to the 50-day EMA for a more serious warning sign.

        


The EFA (I-fund) was down sharply, pulling back from its recent highs.  You can see the rising support coming into the picture near 69.50.

        


The AGG (F-fund / bonds) rallied sharply as anything above 0.20% is a big move for bonds in a day.  But more meaningful was that it was able to quickly recapture that old resistance line after falling below it for a day.

        
 

The yield on the 10-year Treasury was down after failing to move back above the 50-day EMA and rising support line, which it tested late last week.

       
 

The longer-term chart of the 10-year yield shows the longer term downtrend after failing at the 200-day EMA.  It's a slow process, but this actually looks bullish for bonds and the F-fund going forward since they move counter to yields.

        


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.  We'll see you back here tomorrow.

Tom Crowley


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Chart provided courtesy of www.sentimentrader.com
 
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