TSP Talk Blog

Stocks tanked for a 6th straight day on Thursday, and we did get a taste of panic and capitulation type selling toward the close. The Dow lost 1191-points, which is a record, and while it can get worse, it's just a matter of time before we get a snap-back rally. The question is, how much will we be able to trust any rebound in the short-term? That's what makes this action dangerous - and exciting - depending which side of the fence you are currently on.

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This has been the worst week for the S&P 500 since the financial crisis, and the record high to this 10% plus correction in 6 sessions has been the fasted correction ever.

It was just last week that we talked about not being surprised by a big drop given the warning signs we've been getting. I wish it was that easy because, we've actually had many warning signs over the last 3 months or so. Until recently, the market, and investors, ignored them. That's likely why this decline has been so harsh. The indices just kept stretching and stretching and finally the rubber band snapped and we've seen 4 months of gains lost in just 6 days.

It reminds me of the first trade war scare for stocks back in early 2018 where we saw a relentlessly rising market give up the ghost in late January / early February of that year slamming the S&P 500 12% in a matter of days. That's about what the S&P 500 is down right now.




We got a snap back rally in 2018, as you'd expect, and it was a good one, but "V" bottoms are rare after a fall like that and the market spent the next couple of months testing and retesting the lows before a bottom was eventually made.



If there's an extra bearish aspect of this current decline compared the 2018 correction, it's that the 200-day EMA did not hold yesterday as you'll see in the 2020 chart down in the section below.

2018 may not be the exact roadmap, but possibly a pretty good template for what we might expect over the coming weeks. Of course every case is different. I just don't expect a "V" bottom like we got to start 2109 unless something dramatic happens like the Fed drops rates unexpectedly or something.

So, expect volatility to continue as dip buyers eventually buy the extreme oversold conditions, but if you're trying to trade this, remain nimble in this environment because rallies may not mean the worst is over - and those rallies can get explosive and comforting, and get you leaning the the wrong way if / when another push lower comes.

Expect the media to push this for everything they can because their ratings are rising and they're selling newspapers and ad revenue is flowing. Some also have another agenda, but this may not be the place to talk about that. So far it has worked as this isn't a valuation sell-off. This is a fear driven sell-off. Did I mention there have been no coronavirus related deaths in the U.S.?

I hope we've been of some help to you. It was only a week ago (2/20) that we said this as stocks were making another all time high... "I just want to make sure our readers aren't blindsided when the good times eventually come to an end. There was a reason people were jumping off of buildings after the 1929 market crash. Things were so good in the roaring 20's that they never saw it coming."

We're certainly not at the same level of selling as 1929, but the blinded sided comment seems to ring true at this point. Our TSP Talk Plus subscribers know that we've been out of stocks completely in our TSP since Feb. 21, but to be fair, we've been overly defensive in our allocation for some time because of the warnings signs we've been seeing, and we missed a lot of the December and early January rally, but the F-fund helped this year along with some quick in and out trades in the stock funds, and we're doing just fine. But now we're just itching to do some buying.

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The S&P 500 (C-fund) was down sharply, and had a record point loss, and it is now down a little over 12% for the year. That's nothing too historic, but how quickly it happened is. The 200-day EMA was penetrated quite easily, and that's troublesome causing some panic selling and you can tell by the spike in trading volume.




This five year chart shows the times when trading volume hit 4 billion shares. Normally we see this at turning points, and that may or may not happen this time - but here it is. That is unless the fear frenzy continues to be perpetrated.




The DWCPF (S-fund) also fell right through the normally solid 200-day EMA and the precipitous angle of the decline is eye opening, but it likely means the snap back rally will be explosive. It's just a matter of when it start and if you are willing to take a risk. Sitting back and waiting for the smoke to clear is certainly an option because the risk of being wrong by picking a low can be costly.




The EFA (I-fund) has been leading on the downside but with stocks down so sharply in the U.S. late on Thursday, the EFA actually held up a little more yesterday.




The High Yield Corporate Bond Fund fell sharply, hit the 200-day early and found some support. The rising support line was broken, so it's the 200-day EMA that will be the key.




The yield on the 10-year Treasury hit a new all-time low on Thursday, but it did get a little bounce off the lows by the close.




The AGG (bonds / F-fund) made a new all time high on Thursday but closed well off the highs and backed off from that rising resistance line. I'm not sure I like bonds in the short term, unless the Fed steps in and decides to preemptively cut rates.




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Thanks for reading. Have a great weekend!

Tom Crowley


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