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TSP Talk Market Commentary 01/27/2020

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Stocks opened higher on Friday but the high of the day was it in those opening minutes, and from there it was a steady decline down for most indices. There was a little buying toward the close to push the indices off their lows, but the weekend newspapers could remind mom and pop investors that sticks don't always go up, so Monday morning could be interesting. The Dow lost 170-points or 0.58%, but the broader market indices took a bigger hit percentage-wise.

Daily TSP Funds Return

The I-fund was given a solid gain on the day, but as we often talk about here, the overseas markets and overnight currency trading makes it tougher for Blackrock to price the TSP's I-fund for us, and adjustments have to be made in the following days, so the I-fund may have to give a lot of that gain back on Monday.

Investors seem to be using the concerns of the possible impact that the coronavirus could have on the global economy, as a reason to take some money off the table, given the profits that have been amasses over the last several months. Whether the coronavirus will have an impact on the economy isn't known, but the potential was enough for some to hit that sell button.

Investors can be lulled into a complacent state where they forget that stocks don't go straight up all the time, and when things do start to turn it can turn their euphoria down the slope to start the other side of the cycle of emotions.

Despite the great start this year, we are actually seeing bonds (F-fund +1.29%) outperforming the I-fund (+0.42%) with the S-fund just a few tenths of a percent below the S-fund (+1.54%), which is a bit surprising. That could trigger inventors to lean toward wanting to alleviate some of their aggressive allocations and move more into bonds, or even cash, to protect their gains, and that is how a pullback or a correction develops.

Are we there yet? One down day doesn't mean a whole lot, but clearly the market has come long way over the last 4 months and the market needs to breathe to keep it healthy. The futures were down fairly sharply on Sunday night so Monday may be a wild one.

The S&P 500 (C-fund) declined sharply on Friday after a strong positive open, and that created a negative outside reversal day pattern on the daily chart. Technically, there wasn't a whole lot of damage done yet as the 20-day EMA seems to have held at the lows, and any further selling would still have that solid support line, currently climbing up near 3255, to potentially provide another buying opportunity for the relentless dip buyers. After that, the support gets rather thin because of the string up action. If that fails, that's when there could be some real selling

The DWCPF (S-fund) did test the bottom of it longer-term rising support line, and despite an intraday break, it did manage to close just above it.

The Dow Transportation Index was down but closed off the lows creating two good sized positive kangaroo tails, keeping it above the 50-day EMA which has been holding well for the last several weeks. 10,900 is the key short-term support area.

The EFA (I-fund) was down sharply on Friday, despite what the I-fund price may indicate, and that tells me Monday's price could be under pressure. The dollar was also up adding more pressure, and the rising support line was broken here.

The price of oil and copper, two economically sensitive commodities, were both down on Friday and have been down sharply in the last week or more. This could stem from concerns of what the impact of the coronavirus could have on the economy.

The yield on the 10-year Treasury fell below 1.7% on Friday, hitting a multi-month low matched on the 1st of November, which had filled an open gap from early October so it looks like an interesting make or break area for the yield. If that doesn't hold the October lows may be next to be tested, and I don't think the stock market will appreciate that.

And of course when bond yields go down, bond prices and the F-fund go up, so we saw a new high in the AGG and the F-fund on Friday. There was a possible negative reversal - the opposite of the possible positive reversal on the stock indices, but because of the breakout a few days ago, I would suspect any pullback here would be temporary and bought - as long as that old resistance line holds.

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

Tom Crowley

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The legal stuff: This information is for educational purposes only! This is not advice or a recommendation. We do not give investment advice. Do not act on this data. Do not buy, sell or trade the funds mentioned herein based on this information. We may trade these funds differently than discussed above. We use additional methods and strategies to determine fund positions.

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