TSP Talk Blog

The market continued its volatile ways with another 3% move in the Dow on Monday. Meanwhile we did see some pockets of strength and the Nasdaq was actually turning positive with 5 minutes left in trading, but that last 5 minutes sent it to the red side again. Smalls caps were down but still outperforming with a loss of less than 2%. That's where we are today - where a 1.88% loss is a small victory. Bonds and gold rallied sharply, and oil was up slightly.

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The Fed announced more stimulus in the form of buying corporate bonds and that ignited the futures early on Monday morning, but that rally was quickly sold as we got closer to the opening bell.

I'm not sure who is still selling at this point, but for every transaction in stocks there has to be a buyer on one side, and a seller on the other. Is it an even distribution of buyers and sellers, or are there big buyers on one side selling to smaller retail investors, or big money sellers selling to smaller buyers? You would think that anyone who had a conviction that this market is going lower would have sold by now. Could the news be any worse? Normally that's why we get relief rallies which become profit taking events, even in a bear market. But this relentless one-sided action has me slightly suspicious of the activity.

Not much progress on the stimulus front as of this writing on Monday evening, as folks in congress are doing what they do. Never let a crisis go to waste, as we've heard before, and we see pork issues trying to slip into the coronavirus stimulus bill causing it to not pass. That's their job, I suppose, to do what their constituents want, but this is a bit of an emergency, don't you think?

Not that stimulus is going to cure the coronavirus, but the market is looking for some reason to be optimistic, and we haven't see much of that in a while.

As for navigating this market, it has been tough if you've done anything but just sit on the sideline (or in bonds) over the last month.

For us with just two IFT's per month, we don't have a lot of options. Trying to time a market that had gone virtually straight up from October to January, and then straight down for the last 4 weeks, is quite tough. It's a buy and holder investor's dream on the way up, and their nightmare on the way down.




Unfortunately for market timers, the straight up, straight down ,market isn't easy to navigate either no matter which side you're on. It's difficult to buy dips and sell rallies when they don't last more than a day or two.

Being a market timer, I want volatility on both ends, up and down, and a choppy market - whether trending up, down, or moving sideways - provides opportunities.




Maybe it is the program trading that has changed things. I don't like to hear the phrase, "it's different this time", because it rarely is, but program trading, which can push the market past typical fear and greed extremes, makes it more difficult to simply buy low and sell high. Over the last year or so there's been only buy high, sell higher, or buy low, sell lower.

We're in unprecedented territory so, other than a little luck, insight, or maybe fear, most market timers were probably blindsided at some point, as was I. This has been the fastest 30% drop in stocks ever so trading models based on historical precedence have been useless. The question is, will that eventually correct itself, or even over-correct?

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The S&P 500 (C-fund) broke below the prior lows and the descending resistance held so the trend continues on the downside. Obviously oversold, and nearly every indicator is near an extreme, but the downside pressure is being put on by someone. Whatever or whoever it is, it has never been worse - ever, in this short of a period of time. If you have kids, they may be telling their grand-kids about this event.




The DWCPF (S-fund) flirted with that 900 area for a third straight day and held. Not much positive here but we may have seen the steepest resistance line broken now, with some stabilization.




Same here in the EFA (I-fund). It could be a bear flag but those lows are holding precariously for now.




The Transportation index - same thing, as the highest volume trading day, last Thursday, is trying to hold as the low and it was successfully tested on Monday, although a 2% loss is not much of a victory.




The gold chart shows what I have thought could be possible in the stock market. That is, for a test of the lows to hold, and rather than it turning into a broken bear flag, we get a bounce of a few days of stability.




The AGG (bonds / F-fund) rallied sharply and broke above a couple of key level in the descending resistance line and the 200-day EMA. Stimulus packages and QE are not great for the bond market since they are intended to boost the economy and spending, and that normally lifts yields (and hurts bond prices), but it is still the safe haven that investors will use when stocks are not working.




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

Tom Crowley



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