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TSP Talk Market Commentary 04/17/2020

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Stocks chopped around quite a bit on Thursday, oscillating between gains and losses, particularly on the S&P 500, but a late rally helped push them toward the highs of the day by the close. Dow closed up 33-points despite spending most of the day in the red. Small caps lagged again, and like Wednesday, the large tech companies led on the upside giving the Nasdaq a big boost.

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I see the futures were popping up after the bell on news from Gilead that Remdesiver is showing good results in helping coronavirus patients recover rapidly in clinical trials. So here we go again.

The jobless claims were bad again, slightly worse than expected, but once again the market seemed OK with it as it tries to look past this pandemic which caused a shutdown in the economy and brought the stock market to its knees just a few weeks ago. For some reason investors don't seem overly concerned anymore despite the economic data being abysmal, and no official opening of the economy seen for weeks, if not months.

Is this rational action? Is the market's perceptive that it knows stocks have fully priced in this unprecedented economic meltdown, and the worst is behind us? Is being 12% below (maybe less than 10% if the futures hold) the all time high the correct number? Was the 30% plus losses at the March lows overdone, or was that the correct number?

I don't have the answers, but this is basically what we're all wondering? The charts have some suspicious bear flags on them that could send the indices back to the lows, but like the early 2019 rally after the near 20% sell-off in late December 2018, perhaps it won't come. Let's revisit that bottom...

In late December 2018 the S&P 500 bottomed and the moved off the lows was quite explosive. There was a one-day hiccup on the 2nd trading day in January after an Apple earnings warning, but from there it was a straight elevator ride back over the 50-day EMA, a slight pullback and successful test of that 50-day EMA, followed by a continued move higher that easily broke above the 200-day EMA and never looked back.

Of course the economy wasn't shut down in 2019 and the Fed was actually raising rates in late 2018 because the economy was heating up so much, so it was a completely different situation.

Fast forward less a year to February 2020 where the S&P 500 was another 875 points higher (from where the 50-day EMA was recaptured in Jan. 2019), or 30% higher. The coronavirus "freak-out" then shaved 1200 points off the S&P 500 in four weeks, from high to low.

The S&P 500 pushed through the 50-day EMA just this past Tuesday so that was a good sign, but the following day it gave up that 50-day EMA after a sharp decline. Yesterday it ran back up the 50-day EMA, but it stalled just below it.

If the positive reversal day does what it is supposed to, we should see another move above the 50-day EMA today. That's going to be big, but it has to hold. (Update: Gilead's news may be the catalyst.)

So while the economic data currently stinks, and we know earnings will be well below any previous estimates made before February, the market seems to be making a move like in 2019 that, from a technical standpoint, could mean the rally is just about to breakout.

I keep wondering if it's possible, especially with the bear flags on many of the charts. But anyway, that's what I'm watching as I am stunned that this market is even considering narrowing the 2020 losses with what we are seeing unfolding in the fundamentals world and about 6 million new people each week filing for new jobless benefits.

I'll make this brief with the charts today because it looks like the early action tomorrow could change everything.

The S&P 500 (C-fund) hit the 50-day EMA again yesterday, after failing to hold above it for more than a day on the first attempt. The futures are popping higher on that Gilead Remdesiver news and that puts the top of the open gap near 2900 in play. It would also push closer to the 200-day EMA. Is it a trap, or is cash trash?

No matter how you slice, this S-fund chart does not look that good. If we get an early pop in stocks because of the Gilead news, we'll have to watch how this chart reacts to the top of that bear flag and the 50-day EMA. If the bears have anything left, this is were they would try to make a stand.

The 50-day EMA is playing a key role here as well in the credit market. The 200-day EMA failed, but so far the pullback to the 50-day EMA is holding firmly, despite the obvious open gap that you would think would want to get filled.

How low can they go? One well know hedge fund manager says bonds are not where to be right now, so he's betting that these low yields are going to hold here, meaning bond prices will not go up. Dalio Says Investors ‘Crazy’ to Hold Government Bonds Now

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Thanks for reading. Have a great weekend!

Tom Crowley

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  1. FAAM's Avatar
    Thank you Tom for your candid objective assessment, as always! I think this market is crazy. Today - looks like may have been smart to IFT into equities (C-fund mostlly) at least somewhat - yesterday... yet the bigger more realistic risk was (is?) that the bear flags will turn South with S&P500 playing at the 50-day EMA... if this is the big unchecked confirmation of a V-bottom rally, I'm way behind it in both my TSP acct and my wife's that I manage. Oh-well, too close to retirement to be too aggressive for us, so I guess we'll have to be happy with preservation plus some crumbs - for now. At least I'm recovering with my Robinhood investments on the side.
  2. FAAM's Avatar
    .. Oh, and I'm certainly not saying this means "anything" at all -- it is coincidental that in your comparison between the 2018-2019 V-bottom rise and the current S&P charts... how right in the last few days we are right about at the identical share-price point... hmmm.

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