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Market Commentary

April 9, 2020
 
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Stocks bounced back yesterday and in another attempt to throw the most people off as possible, the indices gained back all of Tuesday morning's gains that it lost in Tuesday afternoon's sell-off.  Every move it makes seem to be trying to throw one side or the other (bulls or bears) off the track.  And it seems to be succeeding.  The Dow gained 780-points and we saw gains of 2.5% to 4.5% depending on the index.  Small caps led with a big gain of 4.6%.

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It looks like the charts are telling us one of two things -- it is either reaching toward the trading range that has been in play since late 2017, or it is nearing the top of a bear flag.  One of these will occur and if anyone has the answer they know a lot more than anyone else.  I have a bunch of S&P 500 charts to show you below and you'll see what I mean. 

Frustration levels are high on both sides, as you might expect, but that is what the market does best.  It is so easy to be leaning the wrong way in this market, but if you happen to be in sync, you are probably destroying the market index returns because of the size of these moves.         

The market seems to be seeing some kind of light at the end of the tunnel, but other than the March jobs report, we haven't really seen any of the actual evidence of what this shut down is doing to the economy.  On the other hand we also haven't seen any evidence of what the stimulus is doing or will be doing, so there's a tremendous amount of uncertainty and misinformation out there, so good luck to all of us figuring it out.  I hope the charts below help.

From www.tsp.govSome financial markets will be closed on Friday, April 10 in observance of Good Friday. Consequently, the Thrift Savings Plan will not be updating share prices in any of the TSP funds for that day. Transactions that would have been processed Friday night (April 10) will be processed Monday night (April 13), at Monday's closing share prices.

I won't be posting a commentary on Friday.  Enjoy your holiday!
 



I wanted to show the bottom of the late 2018 sell-off and 2019 recovery.  This is a classic "V" bottom with just a few wrinkles along the way.  This frustrated those who were looking for the typical retest of the lows, which never came.

         


Here we are in April 2020 and we've just witnesses one of the worst declines ever, as far as how quickly the losses came.  This does not look like a "V" bottom.  The red lines may have created a "V" bottom if they held, but they did not so we have what looks to me more like a large bear flag forming in blue.  You can see the small blue bear flag in Feb. / Mar. that broke down, as bear flags tend to do.

         

Now the chart is up near the 50-day EMA, forming a that bear flag, and these are patterns that tend to fail, particularly in a bear market.  Then you get a rally like the one we saw on Monday, half of Tuesday, and Wednesday, and investors have to be confused. 

This week's rally pushed the S&P 500 back into the trading zone that we have been noting for a couple of years now.  It seems each time the S&P gets extended, either on the upside, or the downside, it tends to pull back into this zone on the weekly chart.  You can see there is a lot of room in that zone if the bulls are eager enough to push it there.  But is this bear market going to produce the same results as the late 2018 decline which was triggered by a Fed who was raising interest rates?  You would this this one would be worse and the fall-out would last longer than 6 weeks, but there are no rules here.

           


The DWCPF (S-fund) had a big day and the rebound shouldn't be too much of a surprise but as we talked about, the daily swings have been so wide and volatile that it is almost impossible to feel comfortable about any position.  It's still below key resistance in a bear market so the bulls should not be comfortable holding on, but 5% rallies are no picnic for the bears either.

         


Bonds were up modestly and if you want to take on some risk in bonds, that's up to you.  But I think most of us here are really more concerned about whether to be in stocks or not in stocks, so I look at the G and F funds are just "not stocks" at this point.  I was asked yesterday if I though we should be looking at bonds and my answer is basically that I don't want to waste a precious Interfund Transfer (IFT) on the F-fund, when all I am thinking about right is when to get in and out of the stock funds.


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.  Have a great Easter weekend.

Tom Crowley


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Chart provided courtesy of www.sentimentrader.com
 
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