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Another wild day / big reversal for stocks and bonds

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Stocks opened sharply lower on Wednesday and not to be outdone by the turnaround Tuesday, it turned into a wild Wednesday. The final numbers look as if we had a slow day. The Dow, down 589-points at the morning lows, ended the day down just 22-points. The S&P 500 gained 2, and the Nasdaq led with a 0.38% gain. Small caps were up modestly while the Transports were down. Bonds also posted a big reversal day, closing slightly lower.

Daily TSP Funds Return

Caution! Sarcasm alert!

OK, you can go home folks. Nothing to see here. Those new tariffs, the Fed's less dovish stance, the lack of growth in earnings and the internal weakness in the large indices, etc. That was just a lark. Stocks deserve to be right back at new highs, right?

With stocks recently hitting record highs, and every singe decline in history being just a prelude to those new highs, why should anyone ever sell... ever? They just always bounce right back, right?

Well, big picture, that's for the most part true. But if you recall the Nasdaq lost about 80% of its value from the peak in 2000 high to the low made in 2002. And here it just recently made new highs. But don't forget that it took about 13 years to recapture that 2000 high price so it's not that simple.




So, while buy and hold works, it's a long term commitment and if you're planning on retiring with 5 - 10, or even 15 years, who can afford a 40%, 50% or 80% haircut from their account at any given time? And how nice is it to have a bunch cash on hand to be a buyer after one of those kind of declines?

It's never easy and you'll rarely pick a top or an exact bottom, but if you can miss some of the downturn, and jump in again before the losses are fully recouped in the indices, you can outperform the indices while spending a lot of time on the the sidelines and hope to pick your buy spots, while decreasing the chance that you are in the market during a quick decline.
OK, my point is, that stocks fall for a reason, and they recoup those losses for a reason. Why were stocks so unattractive after the Fed Press Conference and the Trump tariff tweet, but now everyone wants back in? Bargain hunting is part of it, but it's mostly emotion when volatility is very high, and you have to wonder if you can trust an emotional rally or reversal. To be less snarky, investors are trying to price the market with all the new information, but running back to new highs wouldn't seem like the correct response.

So today the market will open. The interest rates are where they were on Friday. The new 10% tariffs on China are still scheduled to be implemented in September, earnings season is almost behind us so we have 3 months to wait for the next one, and the bond market is still pricing in a recession. Did a 5% pullback take care of all that? I guess that's the question you want to ask yourself if you have money on hand to buy. The other question might be, should I sell a rally in case it gets bad again?



The S&P 500 (C-fund) closed basically flat on the day but saw another major reversal after successfully retesting the 200-day EMA. There is an open gap near 2915, but it will have to get back above the 100-day EMA to do that, and the 100-day EMA has been an interesting indicator over the last year - acting as support and/or resistance more often than I remember in prior years. A little chopping around between the two EMA's may could be what we see over the next week or so, but that means the bears will have to step in front of the eager buyers we saw on Tuesday and Wednesday.




The 2019 chart shows that, despite yesterday's gain, it is still below the trading channel support line that it fell below on Monday.




The DWCPF (S-fund) also had a big reversal but this one has now closed below the 200-day EMA for three straight days. It spent more than week below it in May / June before rebounding, but there is also small open gap at 1340 that may be a possible target before this pullback is done.




The price of oil plummeted again but it held at the June lows. This is a bad looking chart and the double bottom needs to hold because a break below that may have it testing the 2019 lows which came the first week of the year. This may be another test of the oil market's opinion on the U.S. and China's economy




The Dow Transportation Index held at Monday's low also, but it has been buried below the 200-day EMA for the last 5-days.




AGG (Bonds / F-fund) closed slightly lower after reversing from new lows on the yield of the 10-year Treasury Note were hit in early trading. But like stocks, everything flipped around. The yield closed at 1.684% after hitting low of 1.595%.





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

Tom Crowley


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

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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)