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TSP Talk Market Commentary 5/21/2020

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Stocks rallied back on Wednesday after Tuesday's late sell-off. The Dow gained back 369 of the 390-points it lost on Tuesday, while some of the broader indices tacked on gain enough to push them to multi-month highs. The indices are at the top of a trading range but we are starting to see some of the upside resistance breaking. Small caps led on the upside.

Daily TSP Funds Return
The dollar was down for a third straight day and that is helping the I-fund, as well as commodities like gold, copper, and oil reach some milestones, but with safety trade vehicles like gold and bonds now reaching toward all time highs again, what exactly is it trying to tell us? Perhaps it is just telling us that the Fed is getting too aggressive and hurting the dollar, and of course the stock market certainly doesn't seem to mind that. But if there's more to it than that...

Other than the technical analysis picture and / or the beaten down economy, what can stop this market rally? One thing that seems to be bubbling up again is the tension between the U.S. and China, and we may want to watch those headlines.

Buy the rumor sell the news?

We saw stocks sell off during the entire month of March as investors sold the rumor that the coronavirus was going to cause massive damage to the economy. They were right. Then in April and into May we started to see the weak data get released - disastrous jobs and other economic data with businesses closed throughout the country, and what happened? Investors bought the [bad] news.

Now, while the data is still weak and the worst "rear-view mirror" data is being released, investors are still buying that rumor that things will be improving in the not so distant future. The question is, once the economy is running better and the data actually starts to improve, will we see another "sell the news" reaction?

I was 100% in the G fund at the top in February. I was also 100% in the stock funds (C and S) at the bottom on March 23. I have to admit that I am a little obsessed with trying to be positioned correctly at a market turn. My problem is, once the turn is made, I'm looking for the next turn, which sometimes doesn't' come for quite a while, so I bought too soon on the way down, and sold way too early on the way back up. I do believe I am positioned appropriately for the next turn. The question is, when is that turn coming?

We don't have the luxury of knowing when that will happen. We just have some charts, indicators, data, stimulus, etc., to perhaps help. What we can't do, and what I see often from investors, is talk about what we woulda, coulda, shoulda done.

Every day we have the same decision to make - where do we want our money to be invested tomorrow? Not, where should I have had my money yesterday, last week, last month, etc.

If I was a day trader I would most certainly be playing this a lot differently. But we basically get one opportunity per month to buy - assuming you go 100% into stocks when you do buy - because if you sell again and use your 2nd IFT, you have to wait for the next month to buy again. And with stocks not having more than 2 down days in a row since early March, and the worst we saw was 3 out of 4 down days but the losses were minimal to modest at best. I suppose I'm waiting for the "big one", which may be a fantasy on my part, but if history is any indication, it's very possible, although feeling elusive.

And who do we think is doing all this buying up here? It's not the "smart money." It's small, more emotional traders. I posted this chart from sentimenTrader.com yesterday for our Plus subscribers. Those small guys are as enthusiastic, and a little more so, than they were in 2007 and 2008 - and also at this past February's highs. The large traders are less enthused about buying now.


Chart provided courtesy of www.sentimentrader.com


From www.tsp.gov: HOLIDAY CLOSING. Some financial markets will be closed on Monday, May 25 in observance of the Memorial Day holiday. The Thrift Savings Plan will also be closed. Transactions that would have been processed Monday night (May 25) will be processed Tuesday night (May 26), at Tuesday's closing share prices.




The S&P 500 (C-fund) recovered Tuesday's fluky late losses and moved up another notch and closed back above that key 200-day EMA again. It broke above April's high although there is some resistance near 3000. If this break near the 200-day EMA is nearing a bear market peak like we saw often in 2000 and 2008, it is certainly trying to pull in as many people as it can before it does so.




The DWCPF (S-fund) also moved above its April high but it hasn't quite made it to its 200-day EMA yet. There are good sized open gaps just below on both of these charts.




The Dollar has been falling the last few days and it is now testing the lower end of a multi-month trading channel, where it has been basically moving sideways since the March chaos.




The weak dollar tends to give some life to the I-fund, or at least help it outperform U.S. stocks.




Gold and bonds are sometimes considered safety trades when stocks are struggling. It's not that they always tend to move counter to stocks prices but when the stock market is in trouble, we do tend to see money flow into these two. They are both on the verge of breakouts from long consolidations, and that's fairly interesting under the current stock market situation.




Here's a closer look at the BND / F-fund, which recaptured that broken bull flag after it had a failed breakout recently. It closed at 87.53 yesterday and its all-time adjusted* closing high is 87.59. (* adjusted for dividends.) It looks good, but bonds always seem to wander away from normal technical analysis, so I'm not sure what this wants to do here, despite this recent bullish move.




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: www.tsptalk.com/plus.php

For more info our other premium services, please go here... www.tsptalk.com/premiums.html

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

Tom Crowley



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

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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SPY (C Fund) (delayed)

(Stockcharts.com Real-time)
DWCPF (S Fund) (delayed)

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EFA (I Fund) (delayed)

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BND (F Fund) (delayed)

(Stockcharts.com Real-time)

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