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TSP Talk Market Commentary 04/01/2020

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It was another volatile day for stocks on Tuesday with modest early gains turning into sharper losses by the close while portfolio managers were finishing up their rebalancing for the new quarter. The Dow lost 410-points, closing near the lows of the day and ending an historical month and quarter for the stock market.

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What a month! The media's coverage of the coronavirus could not have painted a more bearish picture and the stock market reacted by having one of the worst 4 week periods for stocks ever. It was a "sell first, get the details later" reaction. Even as the news was getting worse, as far as actual casualties from the coronavirus, the market had exhausted its downside move by March 23 and we finally got a relief rally in that final week or so of trading.

Then yesterday, the final day in March, and we saw some big swings that resulted in another good sized loss to punctuate that historic month and quarter for stocks.

Now that March is behind us and April is beginning, we will start getting more of the actual economic data that the market has been bracing itself for. The jobs report on Friday will be one of the most interesting although it may not even show the full negative picture since we were a week or two into March before things started to officially close down. But we've seen losses in the 20% to 30% range for many of the major indices, so how much of the negative data that we are going to get has already been priced in? You've heard the phrase, buy the rumor, sell the news, or in this case, sell the rumor, buy the news? We'll find out.

I've mentioned the "V" bottom we saw in late 2018, which are not as common as seeing a retest, so everyone seems to be on retest watch, which may mean we better be on the lookout for a "V" bottom since the market likes to disappoint the most people it can. The question is, after the drubbing that stocks have already taken, plus the 0% interests rate and trillions of dollars the Fed and the government are throwing at the economy, should we expect anything close to "normal?" I wish I knew for sure. We have never really shut down the economy like this before, so I doubt anybody is completely confident in their analysis.

The first of April does have a strong seasonal bias, but more so, the first trading day of a new month in general can be a big mover, although not always on the upside.


Chart provided courtesy of www.sentimentrader.com


Do you recall how March started out, and ended as one of the worst months on record?




So regardless of what happens today, up big, down big, or flat, it may not tell the story for what the new month may bring.

The March jobs report estimates are looking for a loss of 150,000 jobs and an unemployment rate of 4.0%.





The S&P 500 (C-fund) was down sharply but it's kind of amusing that a 1.6% move on the chart produced such a small candlestick compared the recent action we've lived through. The 20-day EMA is still holding as resistance but that recent consolidation almost looks like a bull flag, or bullish pennant. There's also some descending resistance of the February highs that is being tested. With the new month, this could explode higher, of fail right here.




The monthly chart of the S&P 500 has so far successfully tested the rising support line. Yes, it was penetrated during the month but by March's close it was back above all of those long-term support lines. That doesn't mean it won't want to go back and test them again.




The DWCPF (S-fund) also has that bullish looking pennant formation, but that open gap down near 950 in a bear market has got to be a temping target. So the question is, to "V" or not to "V". It looks like it wants to pop high, but in a bear market? I don't know.




The Nasdaq has rallied to recover about a third of its losses off the highs, and the recent action has not been bad as far as the chart pattern goes over the last week or two, but yesterday's slight negative reversal pattern at the 20-day EMA may give the bulls some concerns about what happens next.




Despite the losses in stocks yesterday, and a 1% loss in the Nasdaq, there were almost as many stocks up as down on the Nasdaq, so that's an internal sign of strength that investors like to see.




The High Yield Corporate Bond Fund has stalled after filling its overhead gap. What happens next here may determine the direction of the stock market going forward. This would be a clean place for the rebound to stall, so if it doesn't, the stock market will likely applaud. If it does rollover, I'd expect the stock market to test the lows in April.




The AGG (bonds / F-fund) was down on the day but the rising trading channel basically remained intact. That's an F-flag and they do tend to break down, but they can also run a lot longer than you'd expect.




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

Tom Crowley



Posted daily at www.tsptalk.com/comments.php

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