TSP Talk Blog

Enjoying the ride? The market took us on another rollercoaster ride yesterday, this one to the upside and the Dow ended the day at the top with a 1173-point gain. The question is whether it reached the apex yesterday, or is there more climb left in this portion of the trip? The large cap Dow and S&P 500 led with 4% plus gains while most of the indices settled with an equally impressive 3% plus gain.

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We actually got some strong, better than expected, economic reports yesterday so while the market may have liked Biden doing well on Super Tuesday, we just got a 0.50% interest rate cut when the economy still seems to be doing just fine. Of course any coronavirus effects probably aren't showing up in the data yet since it is a projected problem, and the Fed's cut was a preemptive move anticipating a problem - as well as trying to ease the market's fears.

And speaking of economic data, we get the important February jobs report on Friday and it could be an important one with the economy's strength in question. Estimates are looking for a gain a of about 170,000 jobs and an unemployment rate of 3.6%.

Looking for reasons why we might continue to go higher or not and I see that the indices that have helped boost stocks for the last year, the Nasdaq and the HYG credit market, are two of the very few charts that never closed below their 200-day EMAs. Both tested it, but never closed south of it, which I suppose is a bullish sign.






My guess is, we will test the lows again, but it will be later in the month or maybe into April, and we could have some more room on the upside. What is that based on? Nothing but the experience of having gone through these corrections many times.

Even if it does play out that way, it's not going to be easy to navigate. The declines and rallies are massive, happen swiftly, and turn on a dime. With our limited abilities to trade our accounts it makes if very difficult to negotiate the crazy course that is in front of us. If you time it perfectly, you probably got a little lucky.

The futures opened lower on Wednesday night, but that's not too much of a surprise given the strength of the last 15 minutes before the close yesterday. Sometimes the froth at the top fizzles away before you get to the actual substance. The question is whether there will be buyers of this dip, which at this writing is still minor compared to yesterday's gains.

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The S&P 500 (C-fund) rallied at the open but early on it struggled to recapture the 200-day EMA, and it started to back off. But by early afternoon we saw another push by the bulls and this time they were successful at penetrating through the EMA. It just missed reaching Tuesday's high, which was created minutes after the Fed cut rates, which was a fleeting spike, as we know. The 50-day EMA area looks like a possible target if the market doesn't want to tumble right back down.




The weekly chart shows that area where the S&P 500 has gravitated toward since the peak in 2018. It has held as resistance at times, and held as support at others. So for this correction has been able to remain above it.




The DWCPF (S-fund) had a big day but it hasn't yet filled that open gap that we saw get filled on the S&P 500 already so it's lagging some. The 200-day EMA will be its next test if the upside can continue.




The Dow Transportation Index had a big day but the chart doesn't look as impressive as some of the others. This could be a bear flag forming, or it's a chop at a low that is getting ready to take off. This could go either way, but obviously the rest of the market may dictate that. The airline stocks have just been battered with the coronavirus fears, but when is enough, enough?




The EFA (I-fund) filled its open gap, but like all of the others, there is still the main open gap well above which may be a little tougher to fill since it would be almost a full retracement of the losses.




The Volatility Index was down 13% but looking at the chart it is still quite elevated meaning the big swings are likely to continue, so it won't be an easy ride no matter which side of the fence you have your account in.




The AGG (bonds / F-fund) was actually down for a day. After moving significantly below 1.0% on the 10-year yield, we saw it snap back in afternoon trading and that sent the price of bonds lower, but this is clearly still near all-time highs. It just seems so extended and due for a dip in the short-term however, any major negative news event that is coronavirus related will send this higher again.




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

Tom Crowley


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