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It's now or never for the Santa Claus rally

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Stocks passed on another opportunity to rebound as the slide continued with another 2% decline for the Dow, which was down 465-points. The S&P 500 and small caps did slightly better, but not much, although if we're looking for some signs of life, the Dow did close more than 200-points off the lows. The Fed rate hike hangover rolled over into the day, and it looks like stocks needed at least one more day to recuperate.

Daily TSP Funds Return

There were some signs of life yesterday, if you can believe that. The S&P 500 was down 66-points at its lows, or 2.63%, and it closed down about 40 or 1.58%. And after the bell, the futures tacked on another 17 point gain, erasing nearly half of yesterday's losses, in that final 45 minutes of futures trading before they closed and reopened for the evening session. (This action is what adds "fair value" to the futures quotes.) Take it for what its worth, but someone is buying, and it's probably not mom and pop. I think the only reason it did not happen while stock market was open yesterday was because President Trump was speaking just before the close, talking about the potential government shutdown. As if the market needed another reason to be worried.

Theoretically, investors may be selling their loser for tax purposes, but we should start seeing some window dressing buying from money managers, while the bears (mostly traders) should be close to flattening their positions before heading for their holiday destination (which means buying to cover their short positions) so most of this downside pressure should be close to running its course. I know it feels like the sky is falling, but the market has been through this dozens, if not hundreds of times over the years, and barring an economic apocalypse, we should be close to a relief rally. Maybe not a bottom, but a sort-term relief rally.

I know sitting on the sidelines with cash waiting for the smoke to clear is something most investors wish they had done, but if you are scared and selling right here, right now, you are on the wrong side of history. It's a better plan to sell the rallies in a bear market, not to be part of the capitulation. Bear market rallies can be explosive.

Even in during the notorious bear market of 2008 / 2009, we got a huge relief rally of 26% - you read that right - 26% between about Thanksgiving and New Year's in '08. During the days surrounding Christmas in 2008 the S&P 500 gained about 11%. Of course after that all hell broke loose again. But the moral is, stocks don't go straight down forever, even in the worst of bear markets.




Once again, many folks think that the Santa Claus rally works for the entire month of December, but as we've mentioned here, the real Santa Claus rally doesn't kick off until about the 21st, according to the December seasonality chart.


Chart provided courtesy of www.sentimentrader.com



Administrative note: Federal employees excused from duty on Dec. 24. The TSP has posted the closing on December 25, but nothing yet for the 24th, so perhaps they are processing transactions on Monday the 24th.

If the TSP does end up being closed on Monday, we will probably not post a new commentary although Premium Members could potentially get an alert, depending on the service, if there are any changes to the ETF Systems since the market will be open for an abbreviated trading day on Monday. If the TSP is open, there is possibility of a TSP IFT alert so be alert that morning.



The S&P 500 / C-fund lost another 1.58% and the volatility and wild intraday swings continued on Thursday. Volume was very high again, as we expect on Fed days, but also at market downside turning points. On a technical note, the big bear flag whose peak is the October highs, hit its downside target at the lows yesterday, and that may have been part of the reason why we saw some buying when those lows were being hit.




The DWCPF (S-fund) remains in a steady descending channel but is about as oversold as it gets before seeing some relief.




The EFA (I-fund / EAFE Index) held up well again with the help of a dip in the dollar.




The dollar was down 0.77% yesterday and that's music to the I-fund's ears. The 50-day EMA was tested and held by the close on Thursday, but the rising channel has been broken.




The High Yield Corporate Bonds broke down below the bottom of its descending channel support line, but it did get a descent reversal off the lows like the stock market.




The AGG (bonds /F-fund) tried to make a new high but it backed off and closed down on the day. The open gap near 105.60 is where I expect it to head next.




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 a Merry Christmas if we don't see you on Monday.

Tom Crowley


Posted daily at www.tsptalk.com/comments.php

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Comments

  1. shitepoke's Avatar
    Tom...what happened to the s&p after the bell "futures" 17 pt gain you spoke of...did it dissipate in thin air??
  2. tsptalk's Avatar
    Quote Originally Posted by shitepoke
    Tom...what happened to the s&p after the bell "futures" 17 pt gain you spoke of...did it dissipate in thin air??
    They are still in there. Right now (as of 10:44 ET) the futures are flat on the day, but the S&P is up about 17-points. It's all the gains from after the bell last night. The S&P will close today about 17 points higher than the futures quote at 4 PM ET.

    I hope that answered your question.

SPY (C Fund) (delayed)

(Stockcharts.com Real-time)
DWCPF (S Fund) (delayed)

(Stockcharts.com Real-time)
EFA (I Fund) (delayed)

(Stockcharts.com Real-time)
AGG (F Fund) (delayed)

(Stockcharts.com Real-time)