TSP Talk Blog

After Thursday morning's gap up in stocks, the market met resistance like a bug hitting a windshield. The damage was bad - a loss of over 5% from Thursday's high to Friday's close for the S&P 500. The Dow lost almost 1000-points on Friday, the small caps held up just slightly better, and the I-fund had somewhat of reprieve, at least for a day. There's nothing very new out there except for the sentiment of investors as they continue to assess what higher interest rates, higher inflation, and slipping economic numbers means for their investments. Bonds were down, and the dollar closed at a new multi-year high.

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The opening rally on Thursday morning was such a pivotal point for the market, but because of our TSP deadline, there wasn’t too much that we could have done, although you may have had an opportunity to sell that day if you had some foresight and weren't caught up in the emotion of the big rally - like I was.

The S&P 500 was up 50 points, or about 1.2%, during the early Thursday trading, and that gain pushed it above a key moving average that could have opened the floodgates to a new leg higher for stocks. There was a window of about 2 hours where anyone who was in stocks could have interpreted that positive move from a contrarian viewpoint and used it to make an IFT to sell that rally.

You wouldn’t have been able to avoid what came later that day, which was a 119 point decline in the S&P 500 from the early high to the closing low (or 2.6%), but you would have missed Friday's 122-point loss (2.77%) if you got your IFT in before that noon ET deadline on Thursday.

Again that was only if you interpreted the breakout rally early on Thursday as a fake out. In hindsight the failure there had trickery written all over it and it served the purpose of big money manipulating the little guys, and it worked like a charm on me.

I got caught up in that exciting early Thursday rally despite my skepticism in the market, but the rally moved just high enough for my system to believe that the bear market was now behind us. It’s as if the market was manipulated just enough to push market indicators – some proprietary and some commonly used, to get me to put my guard down, so that I was completely leaning the wrong way, just the way they wanted me to. What, me paranoid?

Now the market has tanked and may be staring at a test of the 2022 lows. Many of those same indicators are back in the defensive mode. Is this what they’re trying to do – get everyone to sell again so they can start grabbing bargains while we’ve dumping stocks? Possibly, but I suppose new lows are also possible and new lows would certainly get more nervous bulls to sell.

Earnings season spans several weeks and most of U.S. companies report during this time. I don’t know if this is coordinated but for some reason five of the biggest companies in the world report in a 3-day window this week. Do you think we are being shaken out of stocks for this 3-day event?

Tuesday: Microsoft, Alphabet (aka Google)
Wednesday: Meta (aka Facebook)
Thursday: Apple, Amazon

There has also been a pattern this year where the market changes direction in the final week of the month, with maybe the biggest reversal coming during the final week of January – the week of the prior release of these same “FANG” type earnings.




After we get through the heavy dose of earnings this week, we have the Fed FOMC meeting next week so the volatility will likely continue for a while.

Before last Thursday, of the nearly 1000 accounts that we track on the TSP Talk Autotracker, my TSP Talk Plus system was ranked #3 for 2022 with a gain of 5.32% (The F, C, S, and I funds were down 8.7%, 6.0%, 11.2%, and 8.1% respectively), and we had that early 1.2% gain on Thursday. Fast forward two days and it’s down to +0.35% for the year, and below the return of the G-fund. What a difference about 30 hours can make.

So I do feel there was some manipulation involved. But was it a set up to ignite a rally this week? Or was the recent pattern a set up to get us to believe that is what’s coming?

This is all part of the game that we enjoy playing, but with potentially big consequences and there’s a reason why financial companies like Goldman Sach’s report billions in profits from their trading desk each quarter. They are getting that money from somewhere / someone and a lot of that comes from people like you and me who are battling them while trying to time the market.

Buy and holders aren’t immune from this because they take the full brunt of every loss in the market. At least market timers can try to side step some of the losses in bearish markets. It’s just not always easy – especially when the trading rules are against us like in our TSP accounts. And just wait until the mutual funds kick in in June. Not only will we be at a disadvantage in them because of our limited trading and deadlines, but they will also be raking big fees on top of that, so it’s not an easy game.

The futures have not opened yet as I write this on Sunday morning, and without any change in the news the typical action after a week that ends like last week would be to see more downside in the early part of the week, even if the futures open in positive territory. Sell the rally mentality kicks in, but at some point the downside gets exhausted and that's how you can get a Turnaround Tuesday. Getting earnings from five of the biggest companies in the world this week may mean the action could be less typical, but we'll have to see.

To end this the way I began I will quote the great songwriter / musician Mark Knopfler who said, "Sometimes you're the windshield. Sometimes you're the bug."

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The S&P 500 (C-fund) collapsed on Friday after Thursday's ominous looking negative reversal. This isn't good news for the bulls but I always appreciate when a chart does what is says it is going to do. That is, after a big negative reversal, stocks tend to follow through with more downside. OK that happened, and unfortunately for the bulls, the downside tends to continue into the next week when we see a Friday sell off. The good news is, a "puking" to the downside is usually a sign that the last of the weaker bulls are giving up and that is what triggers reversals to the upside, and we may see something like that this week if we get to 4220 or 4125. We could see a candlestick like we saw on Jan 24 or Feb 24.




The weekly chart of the S&P 500 shows a lot of support bear 4200, and a bottom there may be too convenient. Another big decline could push in the index below 4200 and like I said above, that could create one of those washout reversal type of candlesticks on this weekly chart.




DWCPF (S-fund / small caps) lost 2.5% on Friday which is bad but inline with the other major indices, which is change from recent moves where the small caps have been up or down a lot more than the S&P 500. Is this a good thing? Perhaps. Small caps generally don't do well in rising interest rate environments so if they are keeping up with the big stocks, it could be a sign that investors are done throwing the baby out with the bath water and are interested in some bargains, and small caps have been beaten down for months.




The EFA (I-fund) may have outperformed only because a lot of the losses on Friday in the U.S. came late when the overseas markets were closed. There seems to be some support in the 69 - 70 area, although a test of the March low is still a possibility.




I'm running out of adjectives to describe the action in BND (bonds / F-fund). I think the charts says it all. If a chart starts in the top left corner and ends in the bottom right, you have yourself a bear market.

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

Tom Crowley

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