TSP Talk Blog

Stocks rallied out of the gate on Tuesday, gapping up and trying to erase recent losses. The Dow has now gained back most of Friday's losses, but not all yet. The S&P 500, Nasdaq, and small caps have all gained back more than Friday's losses and, thanks to Tesla, the Nasdaq actually closed at an all-time high. What a difference a couple of days can make.

Daily TSP Funds Return More returns

There was a bit of selling into the close taking the indices off their best levels of the day, but I don't think the bulls were complaining. After the bell there was some back and forth in the futures with some bellwether earnings reports being released.

I didn't see any definitive reason for the rally, although to me it looked like the futures turned around on Monday night after it was reported that someone in the U.S. who had contracted the coronavirus, was released from the hospital. The media is sure trying to gin up emotions with this virus, likely for ratings, and no doubt it is serious, but the coverage seems overblown causing more fear than is likely warranted. Maybe I'm wrong, I really don't know for sure. I suppose I'd feel differently if someone I knew had it.

It's too late now to do anything about it, so just an FYI; stocks do tend to move the day after the State of the Union Address - big up days or big down days. Since 1961 more than half (32 of 61) of the days after the SOTU saw a move in the Dow of 0.50% or more, and nearly 30% had moves of 1% or more. Ironically the 61 year average is closer to 0%: -0.05% to be exact, since 1961.

February's seasonality chart shows one of the rougher months for stocks on average, but this is not a primary indicator and that was made apparent in 2019 where we saw the C, S, and I stock funds up +3.2%, +5.0%, and +2.6% respectively in February of last year.


Chart provided courtesy of www.sentimentrader.com


Copper finally rallied after being down for 13 straight day, if you can believe that. Oil wasn't so fortunate as it tanked below $50 a barrel yesterday and has been down in 11 of the last 12 trading sessions. While these have been potential indications of an economic slowdown, the fact that oil was down again may have something to do with the recent parabolic rise in Tesla's stock. With an electric car company now being the most valuable car company in the world, it may be having a negative impact on the price of oil.

Have all the Hindenburg and Titanic type warning signs been ignored again? As of now, yes. It doesn't feel like this market is ready to collapse, but you never know what is coming next. We did get a 3rd straight Hindenburg Omen signal yesterday for the S&P 500. So, while buy and holders have had a field day over the last several moths, perhaps being more nimble going forward will reward the market timers for once?

---

The S&P 500 (C-fund) did what we had suspected could be a possibility, and that was repeat the "gap and go" that we saw at the October lows. Well, we got the gap part, but we still need to see some follow up "go." If this wants to repeat that pattern closely, today could be the digestion day with the rally resuming on Thursday, but the State of the Union Address on Tuesday night might override that theory.




The DWCPF (S-fund) had a huge day after successfully holding at the 50-day EMA in recent days. If there's one complaint it would be that the old support line, which was broken last week and was a warning sign, acted as the highs in yesterday's trading. Something to watch.




The Dow Transportation Index rallied and that makes three straight successful tests of the 200-day EMA since late October. Remember that 3 to 5 day closing confirmation rule? That helped here. That is, don't always trust a breakdown or breakout until you see 3 to 5 closes below support or above resistance.




The EFA (I-fund) bounced back but the recent strength in the dollar has kept it lagging U.S. stocks. Recapturing the 50-day EMA is a plus, and now it can focus on trying to fill that red open gap. However, it did open another gap down below (blue) so that being filled is also a possibility.




The High Yield Corporate Bond Fund had a good day and most significant was that it bounced back above the 50-day EMA and an old support line that had been broken earlier. It looks like smooth sailing here so it will be a major warning if this happens to fail instead of heading back toward that old high again.




The AGG (bonds / F-fund) finally pulled back and it was a meaningful sell-off for the F-fund at -.37%. But it was due. The question is, will it come all the down to the old breakout level near 112.85, or will the new rising trading channel hold it up closer to 113.75?




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. We'll see you back here tomorrow.

Tom Crowley


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

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.