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TSP Talk Market Commentary 02/13/2020

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So much for a turnaround Tuesday. The negative reversal on Tuesday had created a fairly negative set up for Wednesday, but the market wanted no part of a pullback and we saw stocks rally solidly from start to finish yesterday, and the big three indices all closed at new highs. The Dow gained a healthy 275-points and the S&P 500 and Nasdaq have now been up for 7 of the last 8 days.

Daily TSP Funds Return

The market continues to climb the coronavirus wall of worry, and if anything the momentum has been building since that short pullback to end January. So far the death toll has been greatly below projected estimates and perhaps the indices are trying to make up for those late January losses. This is basically what we thought was a possibility with regard to the coronavirus fears as prior viruses were also overblown and the market barely hiccupped, but blasting through resistance and constant new highs is more than I would have expected.

Yes, 1100 deaths this year is a lot and it is bad news, but as we mentioned before, that's not even on pace with the flu. However, I just heard that China has closed every movie theater in their country, and that's got to be something, right? Are they underreporting the incidences? That kind of precaution, and I'm sure it's not just theaters, has to impact their GDP, even if the deaths are contained.

Perhaps when all is said and done it will take a minor toll on the global GDP and probably first quarter earnings to some extent, but we may not hear anything about it until the 2nd quarter earnings warnings start coming in several weeks from now.

We've been keeping an eye on the yield on the 10-year Treasury as a barometer for a potential economic slowdown, and the dramatic decline this year certainly got my attention. It is certainly not a good looking chart but yesterday there was a ray of hope as the short-term descending trading channel broke on the upside and the yield closed back above 1.6%.




The price of oil also got a boost yesterday with a 2.5% rally after its precipitous decline this year, and perhaps the lower end of the range is going to hold. It looks like it could be a bear flag, but a similar formation in June led to a sharp rally over the summer.




There's no doubt that the pieces are in place for another good year for stocks. We have low interest rates, low inflation, an accommodative Fed providing tons of liquidity, lower corporate and individual tax rates, cheaper gas prices, yada, yada, yada. What could go wrong, right?

Well, valuations are historically high levels, but as we've talked about before, we also have historically low interest rates where cash and bonds are not paying enough to draw folks out of stocks yet. Something may trigger a major change and it wouldn't be the first time that euphoric stock market turned bad in a hurry. But enjoy the rally. Just don't get too complacent because no one is going to ring a bell to let us know when we're at the top.




The S&P 500 (C-fund) made another new high despite Tuesday's negative reversal. It is nearing the top of the longer-term rising trading channel, but that channel's resistance line is also rising at a steep rate. Getting past that negative reversal does open the door to continued upside, but it is always vulnerable to the next headline. It's back to being dangerously above its 200-day EMA as the rising angle of incline of both seem to be keeping pace.




The DWCPF (S-fund) had a decent day and closed at a new high, but it too is testing the upper end of its rising trading channel.




The EFA (I-fund) was up but as we've been saying for weeks now, the strong dollar makes it tough for it to keep pace with the U.S. indices.




The dollar made another new high yesterday as it rises along its narrow rising trading channel. That makes the rally in oil yesterday even that much more impressive. Oh, and copper rallied too despite the strong dollar. Positives for the economy?




The Volatility Index plummeted 9.5% yesterday and it fell below the key 200-day EMA. This is actually a comfortable reading as it's off the complacent lows, but below the 200-day EMA meaning investors aren't expecting much in the way of volatility, which could mean a slow grind higher for stocks.




The AGG (bonds / F-fund) was down for a second day and is pulling back from that double top. It is sitting on some important support and the next few days could make or break this 2020 rally in bonds.




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

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S&P500 (C Fund) (delayed)

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DWCPF (S Fund) (delayed)

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EFA (I Fund) (delayed)

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BND (F Fund) (delayed)

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