TSP Talk Blog

The volatility continued on Friday with a big rally to start the day that completely failed, but revived itself by mid-afternoon. We had a "V" reversal on the intraday chart, now the bulls are hoping for a "V" reversal on the daily chart, but the bears may not be that quick to give up. The Dow gained 287-points on the day, but it took a lot of detours to get there. The small caps and I-fund lagged again while tech stocks led on the upside.

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The I-fund is tough to price for the folks who manage our TSP Funds. By about 11:30 AM ET all of the overseas markets are closed so when we get a late move like the one on Friday, they have to come up with some kind of price that takes the late action into consideration. They could have given it a larger loss since EAFE index was down 0.33% on the day, but instead the I-fund was down 0.03% and there could be some adjusting in Monday's price.

This second breakdown for stocks in 2018 is a warning sign for the market overall, but in the short-term the downside may be close to getting exhausted. Risks are high but so are rewards if you're willing to get aggressive, but nimble. Sitting on the sidelines and waiting to see how this plays out is not a bad play, especially if you're needing your money any time soon, but you also risk missing out on what can be big snap-back rallies after declines like we just witnessed. So, I'd say there are opportunities out there, but don't get too complacent when you see a big rally. It may not last too long.

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The S&P 500 / C-fund rallied early on Friday, gave back all of the gains, then rebounded late to close with a solid 1.4% gain for the day. There were support levels tested that held just above 2700, and the 200-day EMA was recaptured after one close below it. If it can stay above the 200-day EMA there isn't a whole lot of resistance overhead, but there is a lot of emotion out there and when investors get back some of the money they lost during the sell-off, there can be some quick profit taking which adds an obstacle to any relief rally.




The high volume over the last 3 days smells of short-term relief. Those one day volume spikes (above) in March, June, and September were quarterly options / futures expiration days and that's different than the spike in volume we saw in February, plus a few others less pronounced... and also last week.

So while we could see some short-term relief, the longer-term picture is in jeopardy. In late 2007 we saw the S&P 500 dip below the 200-day EMA, rally back to new highs, only to fall back below the 200-day EMA just a couple of months later. Of course that led to the dreaded 2008 bear market. So, we have a warning sign for the bigger picture, but a short term possible opportunity. Stay nimble.




The DWCPF (S-fund) bounced back on Friday with a moderate gain, but certainly nothing overly impressive considering how dramatic the losses were leading up to the reversal. At Friday's low this fund was down 11% from the late August highs, which is officially a "correction." The small caps peaked well before the Dow and S&P 500 and the chart shows the damage. At this point a rally back to the 200-day EMA is about all I would expect before the bears come back hard at it. I'm not saying it will get back to the 200-day EMA, but the chart above shows that the bulls will buy oversold markets, but they may not have enough energy once the chart is broken, as this one seems to be, to take it back to the old highs that easily.




The EAFE Index has been in a bear market for some time time but now it is extended past the bottom of its descending channel so, like the failed breakout in late September, it wouldn't be a surprise to see this snap back into the channel. That doesn't mean it is out of danger. It's a bear market and rallies will likely be sold, but there should be some rallies.




The High Yield Corporate Bond Fund had broken below one of its rising support lines, but found some support near the lower support line and the 200-day EMA. It rallied on Friday but let's see if it can get back above that key red support line. The yields on these High Yield Bonds are rising and that puts pressure on stock prices, so that's why this is important.




The AGG (bonds / F-fund) was up again as the fear in stocks kept investors interested in bonds for a few days, but it looks like it's hitting some resistance at Friday's highs.




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

Tom Crowley


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