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TSP Talk Market Commentary 04/06/2020

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The much weaker than expected jobs report (-701,000) took its toll on stocks on Friday and the Dow, which actually went positive in early trading, drifted lower for most of the day and closed down 361-points despite a late move higher. Small caps lagged, bonds were up, and oil had another big day after the agreed upon cut in production.

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Thursday's weekly initial jobless claim report and Friday's March jobs report were both off the charts bad, yet stocks were actually up during that two day stretch. As we have all seen, the rapid decline in stocks in March was unprecedented, and with the help of some hysteria, we may have seen a year's worth of potential losses occur in one month. As bear markets go, this one is as severe as they get and that probably means we can expect bearish results going forward, but how much of March's historical losses are priced in what the coronavirus is going to do to the economy?

The Fed acted quickly and together with the government there has been an historic amount of stimulus thrown at the market recently. Over the next several weeks and months, the battle being waged between the bulls and bears will have to do with the aftermath of an economy trying to recover while everyone is being forced to stay in their homes, versus that tremendous stimulus in place to try to reignite the economy.

We've had the anticipated relief rally, but it stalled at some pretty convincing resistance levels that are drawing a line in the sand for the bulls, as you'll see in the charts down below.

Gold looks primed for a breakout with its inverted head and shoulders pattern. The printing of money causes inflation, or hopes to, and gold seems to be ready to make a move.

You would think by now, more than 35 years since its inception, that the TSP would have a fund dedicated to more diversified investments like gold or real-estate, but no. With bond yields at historic lows, the G-fund paying virtually nothing, and stocks entrenched in a bear market, how can average TSP participant make money? Are they just stuck trying not to lose money?

Of course TSP Talk likes to try to time the market and the recent 20% rally in stocks is why. The TSP is not a big fan of us doing that and would prefer that we left our accounts alone. Yes, the buy and hold investor was in on the 20% rally, but they also took the full brunt crash. Timing the market is not easy but when the market is moving like this we do have some opportunities, even with our transaction limits and deadlines. and you can beat the market.
Even if you got off to a bad start this year, with 9 months left in 2020, and the VIX remaining quite elevated, there should be plenty of opportunities, disappointments, and victories for market timers. While the buy and hold investor has to hold on and just hope the worst is over.

The Transportation Index may get hit today after reports after the bell on Friday that Warren Buffett was selling part of Berkshire Hathaway's stake in Delta and Southwest airlines. Delta was down 11% in after hours trading, and Southwest was down 5%.

The futures opened higher but stalled at resistance initially, so we'll see if the bears dig in, or if the bulls are ready to make another move.

The S&P 500 (C-fund) tried a few times but it failed repeatedly at the 20-day EMA and also at the descending red resistance line off the highs. The latest development is a small bear flag (blue) which actually isn't that small - just in comparison the recent wide swings. The top to the bottom of that flag is about 200-points from 2641 to 2447. A breakdown would probably fill that open gap near 2300. At this point a move above the 20-day EMA would be a bullish sign.

The weekly chart shows the S&P stalling at the 200-week average. Normally a strong support level, but now that it is broken, it has been acting as resistance. We'd probably need to see a move above 2650 to call this good.

The DWCPF (S-fund) is sliding lower and continues to lag the large caps. Today's overhead resistance would be in the 1030 area.

The High Yield Corporate Bond Fund took another beating on Friday falling over 2%, and this is a concern for the stock market. A bounce above 75 would be a good sign, otherwise the resistance is descending and a test of the lows may be in the cards.

The price of oil jumped for a second straight day after the cut in productions was announce, but this chart is still in some trouble. There's a large open gap up near 40 that may want some attention, but with the resistance line closer to 32.50 and the 50-day EMA near 37.50, 40 may be a tough task in the coming weeks.

The AGG (bonds / F-fund) posted a modest gain and that bull flag is still developing. Any breakout from that flag however, could be met with resistance just above 116 - the old support line.

Read more in today's TSP Talk Plus Report. We post more charts, indicators and analysis, plus discuss the allocations of the TSP and ETF Systems. For more information on how to gain access and a list of the benefits of being a subscriber, please go to:

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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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