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TSP Talk Market Commentary 03/27/2020

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Another rocket ship rally in a bear market. Fun, huh? I guess it depends which funds you are in. The Dow jumped 1352-points, and unlike Wednesday, this time it held the rally held onto the gains into the close and closed near the highs. End of month rebalancing, dead cat bounce, whatever you want to call it, that was a big day for stocks. Unfortunately the biggest rallies tend to come in bear markets and a lot of people are on the sidelines in cash or bonds when we get them, so they tend to be the ones doing most of the buying.

Daily TSP Funds Return

Everyone was so concerned about yesterday's initial jobless claims number, basically the first indication of how the coronavirus was going to impact the economy, and it was a whopper at 3.2 million. By comparison, the last report was 282,000.

However, as we talked about yesterday, it was all about expectations because clearly the market has priced in a devastating economic impact by the virus. Estimates were all over the place but we saw them as high as 4 million so perhaps that is why we saw some buying on the news. It was a sell the rumor, buy the news reaction.

Whether you're in stocks when they are being pounded or out of stocks on a day like yesterday, this kind of market will frustrate you, and with two IFTs per month, you are going to have good days and bad, we can't avoid that in this kind of volatile market.

So what's ahead? The talk by the pundits are saying that end of month and end of quarter rebalancing and window dressing for quarterly reports could continue to push stocks up into the end of the month. When stocks get this cheap while bonds are doing relatively well, money manager have to rebalance their allocation to their specified prospectus sheets. Also, we know that pension money tends to flow in at the end of the month giving the bullish side an added edge.

I went back to the 2008 - 2009 bear market and noticed that stocks did indeed rally toward the end of the month, only to head back down when the new month started, or a day or two later. Will it happen this time? I don't know. We haven't had another 30 - 40% decline this fast to compare it to.




The seasonality chart for March actually shows a negative bias at the end of the month, but somehow I don't think seasonality alone should be a major factor. However, given the current situation and the chart above, perhaps it may mean something in a bear market.


Chart provided courtesy of www.sentimentrader.com





The S&P 500 (C-fund) has come straight off the lows from Monday and all signs of a bear flag are gone, but that doesn't mean all is well. We'll have to watch the overhead resistance if stocks do continue higher, and it looks like 2640 or so, then 2860, and 2900 are the next levels that could pose a threat, but of course headlines are still toxic and in this kind of market investors could flinch very easily.




The DWCPF (S-fund) is now 24% above the recent lows, and that's a good move for a bear market rally. In 1929 and 1987 we saw rallies closer to 30% off the lows, but this didn't necessarily hold so being nimble, if you are trying to time things, is crucial.




The EFA (I-fund) ran up into one of its open gaps which still has a little more room before it gets filled.




The dollar behaved and stayed below 28 on the UUP chart, which helped the market although commodities haven't been rallying on the drop in the dollar and that's a little concerning. Oil was actually down quite sharply.




The Dow Transportation Index also gave us a bit of a yellow flag (not quite red yet) when it did not make a higher high over Wednesday's high like the other indices. It seems to have stalled at the top of the open gap, and that's what I'm a little concerned about happening with the stock index charts.




The AGG (bonds / F-fund) was up again although it took a late rally to put it in the green. This is certainly looking like a "V" bottom.




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Thanks for reading. Have a great weekend!

Tom Crowley




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SPY (C Fund) (delayed)

(Stockcharts.com Real-time)
DWCPF (S Fund) (delayed)

(Stockcharts.com Real-time)
EFA (I Fund) (delayed)

(Stockcharts.com Real-time)
BND (F Fund) (delayed)

(Stockcharts.com Real-time)

Yahoo Finance Realtime TSP Fund Tracking Index Quotes