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TSP Talk Market Commentary 03/31/2020

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Coming into this week, every Monday in March had been quite negative for stocks, so of course late on Friday there was a rush for the exits before the closing bell. So, Mr. Market did it again and went against the pattern and we got a big rally on Monday, although it was only about enough to take most of the indices back to Friday's highs before the sell-off. Still significant. That has set up some interesting patterns on the index charts. The Dow gained 691-points with gains over 3% for the big three indices, while small caps (S-fund) and the I-fund lagged gaining about 2% and 1% respectively.

Daily TSP Funds Return

It was actually quite impressive given the fact that oil fell to a new 19-year low closing at $20.09 a barrel yesterday. That was another 6.6% drop and actually oil has been slipping lower since the lows in stocks last Monday.

I suppose it still matters, but I wonder what this bounce in stocks would be doing if oil started to rallying back.

As we have said repeatedly, bear market rallies can be explosive. The S&P 500 is currently 19.8% above the recent lows, but you never really know when the rally is going to end. The gains are so good that, if you're in stocks, you hate to sell and miss out on the next big move higher, but every day that stocks go up we get closer to what could be the end of that bear market rally.

For those into Fibonacci retracement levels, here are the target retracement levels of the losses from the top to the recent lows in the S&P 500:

23.6% = 2430

38.2% = 2651

50% = 2792

With the S&P 500 closing at 2627 yesterday, it surpassed the 23.6% retracement already, and is nearly at the 38.2% retracement. If it can continue to rally, the 50% retracement would have it testing the 2792 area, or about 6.3% above yesterday's close.

The March jobs report estimates are looking for a loss of 150,000 jobs and an unemployment rate of 4.0%. The question is whether this number is priced in, or if the number comes in well above or below these estimates. If you recall we got the jobless claims number that was very bad last week, yet stocks rallied, so it's not so much about the number, but where it comes in versus what's expected. It could be an eye opener if worse than expected, or a shrug if most already expect it to be very bad.

The S&P 500 (C-fund) is in an interesting situation. Yesterday's rally pushed it back up to the 20-day EMA (green) and the descending resistance line off the highs. That's a lot of resistance, but it has also formed a bull flag (blue), and they tend to break to the upside. We're in a bear market so it's tough to anticipate too much good happening, but if it can push above yesterday's high, then the 50-day EMA could be in the picture, or at least that 38.2% retracement level of 2651.

This chart shows the 50 and 200-day simple moving averages of the S&P 500, as opposed to the EMAs (exponential moving averages) that I normally use. The reason I bring it up is because some investors and traders use the simple averages and since they just recently crossed, it is considered a bearish intermediate-term sign.

The DWCPF (S-fund) is also forming a bull flag and a breakout could look toward filling the open gap near 1175. But, being in a bear market and under resistance, we can't anticipate good things will automatically happen like filling that gap.

The EFA is in the same boat after its big rally over the last week.

The AGG (bonds / F-fund) was up slightly again but there was a bit of a negative reversal formed, and a slight break from that steep ascending support line.

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

Tom Crowley

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The legal stuff: This information is for educational purposes only! This is not advice or a recommendation. We do not give investment advice. Do not act on this data. Do not buy, sell or trade the funds mentioned herein based on this information. We may trade these funds differently than discussed above. We use additional methods and strategies to determine fund positions.

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