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TSP Talk Market Commentary 5/20/2020

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Stocks were doing just fine for most of the day yesterday and were hitting the highs of the day with about an hour to go in the trading day, when another Moderna headline reversed everything. The Dow ended the day down 391-points, the S&P lost 1%, the Nasdaq led with a modest loss, small caps lagged, and bonds were up.

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Moderna and it's vaccine trial news was a major catalyst on Monday helping the market indices to gains of 3% or more, pushing some of them above key resistance levels. Fast forward a day and Moderna may be under SEC scrutiny after offering new shares on the day where their coronavirus vaccine drug news may have been given more credit than maybe it should have.

This headline came out before yesterday's closing bell, changing the tone of the day in a hurry.

Vaccine experts say Moderna didn’t produce data critical to assessing Covid-19 vaccine "There’s really no way to know how impressive — or not — the vaccine may be. While Moderna blitzed the media, it revealed very little information — and most of what it did disclose were words, not data."

On the positive side, stocks didn't give back all of Monday's gains yesterday, but the headline came out with less than an hour left in the trading day.

Wal-Mart may have been another issue. This stock, and their business, had been acting very favorably being one of the coronavirus beneficiaries, and when earnings came out on Tuesday morning, the stock took off toward their April highs. Unfortunately it couldn't hold onto those gains and it failed at that old high and created a large negative outside reversal day.

While that may be a small impact to the rest of the market, it may be a microcosm of how the market may have been overreacting to companies that were benefiting from, or being less impacted by, the coronavirus, as opposed to stocks that were / are taking the full brunt of the virus like the airlines and cruise companies.

Here's the chart of American Airlines - a completely different picture.

Is the economy improving? Yes, but it's coming from the depths one of the lowest levels ever after the devastating economic shutdown caused by the contagious virus. We still haven't seen the worst of the GDP and employment data, so I just can't get too excited about the rallying continuing much longer. It has certainly come a lot further than many expected, but isn't that always the case with rallies and declines?

The S&P 500 (C-fund) fell back 1%, which was only a fraction of Monday's monster rally. As I alluded to above, that may be because of how late the Moderna news came out yesterday, I don't know. We'll find out soon enough when the opening bell rings on Wednesday morning. That rounded top formation that I had been drawing was broken on the upside on Monday and yesterday's selling seems to rest on top of the old resistance. The open gap is below it and should be a draw.

The Equal Weight S&P 500 ETF, where all 500 stocks in the S&P 500 are used equally and not top heavy with the large tech stocks, shows a less bullish picture for the broader market. It is still below the April highs and may be finding resistance at the bottom of the rising trading channel that it fell through last week.

The DWCPF (S-fund) gave back 1 % of Monday's huge gain. Monday's rally pushed it back into the rising trading channel and above the 50-day EMA, but the 1300 area has been a wall so far.

The Dow Transportation Index flirted with the 200-day EMA after Monday's rally but Tuesday's selling took it back below, and so far the head test of the head and shoulders pattern that we talked about yesterday, is holding.

The EFA (I-fund) filled an open gap on Monday with its big rally, but the top of that gap may end up being a resistance area. It did close above the 50-day EMA for a second straight day and that makes today's action that much more important since I want to see at least three closes above it before calling it an official breakout.

The BND / F-fund bounced back from Monday's losses with a modest gain, and the keys may have been that the 20-day EMA held, and it is now back above the bull flag that failed on Monday.

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

Tom Crowley

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