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TSP Talk Market Commentary 03/25/2020

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The market rallied vigorously on another Turnaround Tuesday. The Dow gained a record 2113-points, or 11.37%, which led the three major indices. We've seen these days before and they've turned out to be one hit wonders so far this month, so investors may be skeptical going into Wednesday. Bonds were up, and the dollar was down. There are some good signs, and maybe some bad, as we'll talk about below.

Daily TSP Funds Return
A few observations from yesterday:

During this entire month, after every big positive day, and there were a few, the futures had turned down immediately after the closing bell. That didn't happen yesterday, and there was actually a small gain in the futures during that final hour of trading after the stock market closed.

The NYSE up volume was more than 90% of down volume, and that's always a good sign when looking for a low, but we'd want to see that happen another time or two to increase the probability of a low. That doesn't mean any rally wouldn't be met with a test of Monday's low, but it goes a long was in trying to firm up the indices.

The VIX was interesting yesterday. After falling all the way below 40, it still climbed back later in the day to close UP slightly. That's quite unusual given what stocks did. That tells us that traders are betting that the market won't be calming down quite yet.

We saw breakouts above some of the sharply descending resistance lines on the index charts. Given how steep the trend has been, it was only a matter of time. That doesn't mean the lows are in, but the descending channels breaking at least eliminates that restricting overhead resistance that has held since about March 4th, as you'll see down below in the index charts.

This is something I am asked about often, especially when the market moves in big chunks as it has this month. That is, how returns add up from one day to the next. For example, if your account was down 10% heading into yesterday, and your account gained 10% on the day, you are not even because you don't add returns to get the total. It's compounding daily. You would actually need a gain of 11.11% to get even after a 10% loss. And the larger the loss, the more you need to make to get even.

The obvious example is, if you were down 50%, how much would you have to make to get even? The answer is 100%, so you see that adding them up doesn't work.

-50% + 100% doesn't equal +50%, it equals 0%. If you started with $100 and lost $50 you are down 50%. Now you have to double the $50 you have (make another $50) to get even, which would be a 100% gain.

Here's some common losses and the gain needed to get even.

We're still waiting on the stimulus deal to be finalized, and unfortunately knowing how Washington D.C. works, it may not happen as soon as people would like because there's some pork in the way.

We can't jump to any conclusions after yesterday's big rally - we've been down this road before, but it's a good start for the bulls.

The S&P 500 (C-fund) gapped up and held onto some large gains yesterday. We've seen this before but this time we saw the descending trading channel break to the upside. It's a little too early for the bulls to declare victory, but it's not out of the question that we see a decent rally continue - even if we do test the lows again down the road.

The DWCPF (S-fund) gained 10%, a big day for an index that has been badly beaten this month. The descending resistance line on this one actually broke a couple of days ago given us a slight clue that a low was trying to be made, but again, that doesn't mean it won't test the lows again at some point.

The Transportation Index had a monster 12.5% gain yesterday while also breaking the downtrend. I know I'm repeating myself but it is a good sign that most of the charts are doing the same thing.

The EFA (I-fund) - ditto, and the drop in the dollar yesterday didn't hurt. We could see the rest of the world react more positively today after seeing that the rally held in our indices into the close yesterday, while their markets were already closed.

The AGG (bonds / F-fund) rallied again as yields slipped. It took out the 50-day EMA this time, and any time a chart is above the 50 and 200-day EMAs you have to give the nod to the bulls. But it will probably have to close positive again today to keep that status.

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

Tom Crowley

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