TSP Talk Blog

It was another volatile day on Wall Street yesterday as the early rally had the Dow up near 500-points before the bears took over again. By early afternoon it was a bit of a stand off as the Dow drifted between slight gains and 150-point loss before closing down 124. The Nasdaq led and closed in positive territory while the Transportation Index took another 2% loss.

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The S&P 500 has been down for five straight days, and 7 of the last 9. Not only that, the losses have been dramatic, so there's a good chance of a snap-back rally coming. What happens after that we don't know, but there's usually more of a chance of a retest of the lows coming, because "V" bottoms, like the one we saw in early 2019, are more rare than retests.




We haven't even had the rebound yet so I may be getting ahead of myself, but the indices are at extreme oversold conditions at the moment.

One thing I am suspicious about is the sensationalizing of the coronavirus. Bad news sells newspapers and gets ratings. I've talked about it before, and the propagating of fear may cause more damage in the U.S. than the virus itself. Yes, the damage in China is bad and could continue to get worse and impact the global economy, but as of yesterday there were no deaths reported in the U.S., and just 43 globally outside of China, yet the stock market has been plunging on the prospects, and the fears.

While the yield curve inversion last year indicated to me that the economy could be negatively impacted and there was even a high chance of a recession by historical measures, the economy has barely wavered. But now here comes the coronavirus, potentially dragging down the economy based on what -- perpetrated fear, or reality? Is it a crisis or click bait?

I just hope I'm right (about it being overblown) because obviously none of us want this spreading here... right? A lot of you out there are retired or are nearing retirement, and your savings may depend on this.

That said the stock market was due for some kind of pullback or correction, and this may have been the excuse. The question is whether this should impact the bull market.

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The S&P 500 (C-fund) tried to rally but failed by the close, which is typical correction action where we see sellers of rallies, as opposed to the dip buyers who have been rewarded for the last year. My guess is they've been beaten pretty good this time. The 200-day EMA and an open gap near 3100 is within reach if this wants to go any lower, but a snap back rally is certainly coming soon. It just may not last all that long on the first try or two, as we showed above.




The DWCPF (S-fund) hit and fell slightly through the 200-day EMA. Being a less followed index, the moving averages aren't quite as important since many bounces off the moving averages are self-fulfilling prophesies because so many people watch them in the bigger indices when they're hit. It's too early to talk about the big open gap above, but one day we'll be addressing them for sure.




The EFA (I-fund) held up OK, but it closed for a third day below the 200-day EMA, and that's getting serious.




The Dow Transportation Index has been getting pummeled and it is about to hit some interesting support from the two prior lows. It could get a bounce there but obviously a break down below that could be very messy.




The longer-term chart shows why. There's not a whole lot of support after that until abut 8730, or about 1100 points lower.




The AGG (bonds / F-fund) was down slightly and that's something we'd expect if we do see some relief in the stocks market. We've seen some big gains in bonds (the F-fund is up 3% this year) - more than you'd expect during a two month period.




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

Tom Crowley


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