TSP Talk Blog

This is getting exhausting and the ups and downs are giving the market some exercise, while the mental strain is weighing on investors. The Dow lost nearly 1000-points yesterday as this week's wild back and forth continued. The bears didn't quite get back all of the gains from Wednesday's rally, and for the week the Dow is actually up 700-points, and it's more than 1400-points above last Friday's low, but with one day to go, that could certainly be in jeopardy in this environment.

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By the time some of you read this, the jobs report will have been released early on Friday morning. The estimates aren't all that low considering the market's economic panic over the coronavirus. Estimates are looking for a gain of about 170,000 jobs and an unemployment rate of 3.6%. You'd have to think that the market would be relieved if this comes anywhere near the 170,000.

Fear mongering and projection have caused the market to fall but now it is just acting like a typical correction trying to find a bottom - or create a new one. The program trading is buying at one level, selling at another level, but the range is obviously quite wide.

The death toll now from the coronavirus, according to the CDC, is 10. More than 200 people a day die as a result of opioids. A day. About 100 to 200 die each day from the flu. Obviously there are concerns that this virus could spread rapidly, but it's the fear that will keep people from doing things that they otherwise might like attend sporting events, theaters, restaurants and malls, and that will have an impact on the economy. 99 cases and less than dozen deaths does not stop an economy. Some who are perpetrating the fear mongering are partially responsible for any economic weakness, which unfortunately may be their goal.

Whichever it is, the losses in the stock market are real, but the future is the only thing that matters to investors. We can't go back and change what we've done, but we have to decide where things go from here knowing that we will be fed the fear until the people either stop buying it [the fear], or something really happens to warrant this crazy market action.

The market was due for a correction and this virus turned into the catalyst. If the fear mongers have their way, it will continue to get worse, but for now it is just playing out like a typical market correction, regardless of the catalyst.

As I said on Monday, and I'll say it again and again while it seems appropriate, "Volatility will remain high so you probably won't feel comfortable no matter what you do, whether watching an explosive rally from the sidelines, or retesting the lows after you thought the worst was over, it's going to be intense."

I grabbed this chart from the 2015 and 2016 corrections and they show what I was thinking could happen this time around, which goes with what we have been saying. That is that we'll see a capitulation type of sell-off, like we saw last Friday, a reversal, and an eventual test of those lows several weeks out. All that stuff in between is what we're dealing with now. Notice the high volume capitulation lows. I marked a couple of high volume options expiration days which are elevated for a different reason.



Watching the futures drop again on Thursday night and perhaps the 2018 comparison we show on Wednesday, may play out. If that's the case we could be setting up for another drop and a pop...




There's no rule that says the lows have to hold, and that may be determined by just how much fear can be generated. Right now many of the sentiment type indicators are at extreme fear levels like the CNN Fear & Greed Index.


Chart source: https://money.cnn.com/data/fear-and-greed/


And comparing this fear level to prior declines over the last few years...


Chart source: https://money.cnn.com/data/fear-and-greed/


To all of you who are actively trying to navigate these waters, maybe it's time to get serious about telling the TSP that two Interfund Transfers each month are not enough. We pay our fees and we want something for them. I'll bet many of you used one, if not two, of your two March IFTs already after just 4 trading session.

Fridays haven't been good for stocks almost all year. This one comes with a jobs report which could make a difference. I don't know what is going to happen, but I do know that I am glad it is Friday.

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I think we all know what's happening here so I don't think I need to get crazy with the charts. The S&P 500 (C-fund) and maybe a couple more will suffice to understand the flow of this market.

This week's action has just been a digestion of the major losses from last Thursday and Friday. We still have that high volume positive reversal day that is holding as the lows. That will be a tough one for the bears to crack, but I as I've said, I believe it will be eventually tested. Maybe the jobs report does it today, but I think it is more likely it will come further down the road like the 2015 - 2016 chart I posted above.




An open gap on the weekly chart is very rare. I saw one back in 2017 and it got filled 4 weeks later, but that gap was much smaller and came in a rising market. Like we said the other day, that 2900, up to 3000, is a pretty important level and it probably needs to hold for this bull market to stay intact.




The Dow Transportation Index was the first to make a lower low, but because of how sensitive the airline stocks have become to the coronavirus fears, they may not be as representative of the rest of the market - although it could turn out to be the canary in the coalmine.




The AGG (bonds / F-fund) was up yet again, so every time I think this about to take a breather, the stock market tumbles back down, and the investors jump in bonds, pushing yields to record lows and bond prices higher.




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Thanks for reading. Have a great weekend!

Tom Crowley



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