TSP Talk Blog

Stocks were up in early trading yesterday, but it turned into a wild Thursday after a dramatic late morning sell-off had traders a little confused. The Dow went from early gains into a free-fall where it was down about 385-points within 30 minutes or so, then spent the rest of the day trying to climb back before closing down a modest 128-points. Small caps held up best and the late rally actually pushed them back into positive territory.

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There didn't seem to be any major catalyst for the morning sell-off, although the coronavirus headlines were sure dire, but investors can't seem to get enough and they were buying back almost as quickly as stocks fell. The futures were down after the bell so maybe they are getting too complacent?

Once again we saw the defensive plays working as well. Bonds were up, as was gold and utility stocks. This is all while the dollar is making new highs, so something very interesting is going on. Is it just a matter of the Fed's "non-QE" quantitative easing?

I've given up trying to figure out why things are happening, and focusing more on what is happening. Stocks are working (except for Thursday's hiccup), bonds are working, gold is working, and the dollar is rallying. But for anyone paying attention on Thursday, the action was eye opening and reminded us how quickly things can change after a 400-point, 30 minute "flash crash."

Whether the action was a warning or turns into just another buying opportunity is anyone's guess.

After yesterday's rant I'll let you off the hook today and make this quick today and hopefully we'll have more clues on Friday to what this market is trying to do.

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The S&P 500 (C-fund) fell quickly on Thursday down near the 20-day EMA (green) and the bottom of the parallel rising trading channel, and held convincingly. The positive reversal was a bullish sign for the very short-term - like Friday morning - but it would have been more convincing had the S&P closed in positive territory.




The DWCPF (S-fund) was one of the winners on Thursday. It led on the upside in the morning with some solid gains before that strange quick sell-off, but it did manage to close in positive territory so the small caps seem to be holding up being that they are less likely to be impacted by the strength in the dollar like the bigger global companies.




The EFA (I-fund) was down again and the dollar keeps moving higher so it is paying the price and continuing to lag the U.S. indices.




And here is that dollar doing its thing, going nearly parabolic at this point.




The price of gold is usually negatively impacted by a strong dollar so this defensive play has been even more impressive with this recent push higher. What this is trying to tell us, I don't know. But money tends to go here when the dollar is falling or people are looking for safety, or both.




The yield on the 10-year treasury made a lower low yesterday before getting a small bounce back above the January low.




The AGG (bonds / F-fund) rallied with the help of a little bit of panic selling in stocks, and it could have something to do with the bond market pricing the possible economic impact from the coronavirus.




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Thanks for reading. Have a great weekend!

Tom Crowley


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