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TSP Talk Market Commentary 04/07/2020

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As we have seen for weeks now, a bear market gives us the most explosive rallies. You rarely see a 3, 5, or 7% rally in a trending bull market. So what did the action tell us? It tells us that we are still in a bear market. Does it mean we are exiting the bear? It's way too early to say, and it shouldn't be that easy. The Dow gained 1627-points or 7.73% as investors became more optimistic about the trend of the coronavirus stats.

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The S&P 500 is now about 21% off the lows, and coincidentally, still 21% off the highs. That doesn't mean we've regained half of the losses yet. As a matter of fact the 50% retracement of the peak to lows losses would put the S&P 500 at 2790, so that is a potential target for any bear market rally.

One thing the bulls want to see now, and they've been down this road before, would be some follow through. We've had several giant rallies over the last five weeks, and all but one of them flipped right back over the next day. The lone green arrow below was the only big rally that saw continued upside the following day.

Once the S&P moved above the late March highs yesterday, short sellers may have had stops being hit forcing them to buy to cover, which added to the strong push higher right into the close.

Bear market rallies can last for weeks. In this recent case we saw about a 3-5 day rally start to fail, but bear market rallies don't have to go straight up for weeks. The back and forth is typical, but the moves are so big that can lose track of what's actually going on. It's difficult to watch a 7% rally and not get emotional about it, whether you are in stocks or not. But it is actually typical action in a bear market, and the rally can keep going for a while, but there's also a very good chance that it will end with another test of the lows.

Bottom line, this was a strong day in a bear market. There's going to be a lot of back and forth in the coming weeks and it won't be easy for the bulls or the bears to watch it gyrate.

The S&P 500 (C-fund) blasted higher and through several layers of resistance with a 7% gain on Monday. It's tough to ignore the technical strength it showed climbing above the 20-day EMA, the prior peak, and the 200-week MA on the weekly chart (not shown), but we've been down this road before with big days that don't last, so let's see what happens next before drawing any conclusions.

This chart shows an interesting series of flags. There was a semblance of a bull flag (blue) although not fully developed, that broke to the upside yesterday. There was a small bear flag (red) within that blue bull flag. And all of that could still be considered inside of a giant bear flag. Time will tell what it does, but it is there.

The DWCPF (S-fund) is also in a bear flag but it did break above that blue descending resistance line.

The High Yield Corporate Bond Fund rallied, and while it didn't breakout, it is testing the top of that bull flag coming off the lows. The stock market will really want to see this heading into that blue circle this week.

The price of oil was down sharply on Monday ending that monster two-day rally, so it may be failing at the 20-day EMA. The stock market obviously didn't care, which is interesting.

The AGG (F-fund) broke above its bull flag as it should, so it is good to see technical analysis still working. There is still decent resistance overhead where the old red support line is crossing.

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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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