TSP Talk Blog

Well, we had a relief rally but it turned out to be one of the shorter versions, and "they" came in on Wednesday and took away all of the gains from that rally, and the S&P 500 closed at its lowest level of the year. Boy, are they good at doing that. Mom and pop were probably just getting brave enough to jump back in with the recent rally, and their money is evaporating again. The Dow lost nearly 1200 points and there was carnage across the board for the stock indices. Bonds and gold were up so investors were seeking typical safe havens, although neither have been very safe this year.

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The sell off in retail pulled another sector into the bear market. Stalwarts WalMart and Target had made new highs in April while the rest of the market was correcting, and both were just moderately off those highs coming into this week. Then this happened.



It was getting so ugly out there that you had to wonder if it was a capitulation sell off, but it's not that common to see a low after a one day drop off a rally, plus there was not a lot of volume, so perhaps there's more downside to come.

The fear levels and investors sentiment rolled over with prices so we could be setting up for one more shake out robbery - I say facetiously - but suspiciously because there is some of that going on. As I mentioned before, the next time Goldman Sachs reports earnings we will see how much they made in profits trading this quarter, while Joe and Jane Sixpack watched their accounts dwindle.

That's because they are better at this than we are, whether you are a market timer or a buy and holder. The buy and holder made a lot of money on the way up, but they also take the brunt of the losses on the way down. At least the market timer can try to sidestep some of these losses.

And those losses were rough for anyone in stocks yesterday, and hopefully if you were in, you were also in during the days leading up to yesterday. If you jumped into the rally late, then you did exactly what those pros wanted you to do.

Technically, we saw some breakdowns as the head and shoulders pattern that we've been watching on the market leading Dow Transportation Index gave us a major breakdown yesterday. On Tuesday I posted this chart and it was at 14,335 and I wrote, "It [Transportation Index] sits below a support line that could now be resistance if it doesn't bounce right back, and the large head and shoulders pattern would have a downside target more than 1000 points lower if it can't hold here."

Well it was down 1096 yesterday but my target meant 1000 point below that neckline so there could be another 500+ points to go. And that's just the initial H&S target and not necessarily a bottom.




Here's a chart that I show our TSP Talk Plus subscribers often that has had me concerned during the recent bounce. It's the High Yield Corporate Bond Fund which gives an idea of how the credit market is performing, which tends to (not always) be a good indicator of which way the market may want to go. Notice that it was not rallying with stocks before yesterday's decline, and now it's at new lows.




Boy, do I sound bearish. Maybe too bearish? I don't know. What I do know is that I have been calling for a short term bounce and we got one, yet I still got caught up in yesterday's losses because I thought there was a little more to go on the upside. I did lighten up yesterday with an IFT but of course stocks were gaining downside momentum like a stone rolling down a mountain so my morning decision didn't do much to keep me from avoiding the afternoon losses.

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Note: The TSP will stop processing IFTs after noon ET on May 26 through the "first week in June." What exact day the first week of June is, I don't know yet.

More: https://www.tsp.gov/new-tsp-features/key-transition-dates

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The S&P 500 (C-fund) continued to fall within its descending channel, and this time it didn't even make it up to resistance in the 4100 and 4150 area before flipping over. Instead it rolled over out of the gate on Wednesday triggered by those retail numbers. The descending channel is about a month old and I don't know how long it can stay intact, but there is a long way down before it hits the bottom of the channel. I'd say yesterday felt like capitulation but we still haven't seen capitulation-like volume yet.




The DWCPF (S-fund) looked very much like it was trying to create a "V" bottom, and even in the morning when the S&P 500 was down over 2%, this was down less than 1%, so I thought it had something going on, but instead it relented with the rest of the market and lost nearly 4%. Now, with yesterday's losses, it looks like another bear flag forming.




The EFA (I-fund) was down but spared the big losses of the U.S. funds, but that could be a delayed effect with those overseas markets closing much earlier than the U.S. market.




BND (bonds / F-fund) got some attention but probably only as a place to put money that was taken out of the stock market.

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

Tom Crowley

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