TSP Talk Blog

Stocks opened lower on Friday, battled back all day to nearly erase those losses, but a late selling surge pushed the indices toward their lows by the close. Mondays have been so bad in March that traders may have been rushing for the exits to raise cash, because on the flip side, Tuesdays have actually been quite good this month. There's a clear pattern over the past several weeks.

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Comparing this to prior corrections and bear markets may not be very useful, but what else can we do? Being the most recent in my mind, that late 2018 decline that sent the S&P 500 down nearly 20%, bottomed on the 24th of December that year. If you recall the Fed was raising rates and the trade war was in the headlines. After the reversal on the 24th, the S&P exploded higher when the New Year started, but then Apple came out with an earnings warnings and we saw a nasty plunge which sent another wave of fear to investors. That turned out to only be a one day decline before the rally resumed.



I don't know if it's a fair comparison because we didn't get an Apple warning type of news event, just some weekend jitters after one of biggest weekly gains in history for U.S. stocks.

We also know that rallies in bear markets can be explosive. They often eventually fail, and we are clearly in a bear market, but they can also last for weeks or months. You can see that in the 2008 S&P 500 chart below that it does try to reach up to the 50-day EMA eventually before some of the rallies failed.




As you'll see in the current S&P 500 down below, it is about 350 points below the 50-day EMA now.

Bottom line: We're in a bear market and that means we might want to expect bad things happening going forward. But if you don't want to sit in the G-fund all year until the smoke clears, the rallies are obviously quite strong and some hit and run attempts can help your overall return. Confirmation of the bottom will eventually come but by then we could have seen several big rallies already. Just be careful and don't get complacent even when it looks like the action is great. Money can be made quickly, but it can also be taken away even faster.

The March jobs report estimates are looking for a loss of 150,000 jobs and an unemployment rate of 4.0%. That's a crazy reversal from one of the best jobs reports we had last month.
My small town of about 20,000 has posted its first Covid-19 case this past week. However, they can only confirm it by the address on test result. They don't even know if the person is still in town. I have avoided a lot of the news lately because I'm not sure I trust everything I hear, and if you can't trust some of it, how can you trust any of it since you don't know who's actually telling the truth? So I have buried myself in the stock market, my local golf courses, and Netflix trying to avoid being influenced.

As devastating as it must be to be sick with this virus, or have a love one impacted, please know that I am only looking at it from a "where's the stock market going" perspective, so I'm sorry if anything I say comes across as being cold. I'm not going to base my analysis on hyper news stories, just what I see in the charts and indicators, and I think that's why you're here - not to know what I think of the virus.

The futures opened sharply lower on Sunday evening but they cut those losses in half at the time of this writing.

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The S&P 500 (C-fund) opened lower on Friday, then climbed higher for much day before selling off in the last half hour. It was quite a run for the index off of Monday's lows, and a day of rest may not be too negative, but unfortunately it is stalling at resistance in a bear market so the bears have some momentum coming into Monday. Trading volume was a lot lower than it has been of late.




The weekly candlestick chart is actually quite productive looking with it being a positive outside reversal week and it closed above the 2018 lows. A close above 2560 would have been more convincing since that would have been above the prior week's high, but still a good formation non the less.




On the other hand the top of last week's rally was right at the key 200-week moving average. Something that held convincingly at the December 2018 low, and now that it is broken it could be a tough resistance area to reclaim.




The DWCPF (S-fund) did not close above the 2018 lows like the S&P 500, and we know it has been hit a lot harder this year with its 29% loss. That 2016 low may be the determining factor if this is truly going to be a break down, all out long term bear market, or if this Covod-19 sell-off will repair itself quickly if it can get contained.




The High Yield Corporate Bond Fund had a productive day despite the losses in stocks, and that's usually a positive divergence for the stock market. I wasn't crazy about it closing well off the highs and creating a slight negative reversal, but we saw that on Wednesday as well, and it rallied on Thursday without a problem. So, we are seeing some good signs, but this need to hang in there.




The VIX has been holding fairly steady between 60 and 70 so investors are prepared for a lot more volatility. But we could say that we have a bear flag forming so perhaps it is looking to break down some time soon?




The AGG (bonds / F-fund) rallied again and this looks like one of those F flags. F flags can move higher in those tight channels for quite while but they do tend to eventually break to the downside. So, if you're interested in the F-fund, it could move slowly higher for a while, but the chart suggests that it could breakdown when it finally breaks the flag.




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

Tom Crowley



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