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TSP Talk Market Commentary 01/07/2020

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Stocks opened sharply lower on Monday, and like many emotional Monday morning gaps, stocks rallied to fill that open gap, but rather than rolling over again once the gap was filled, the bulls kept the pressure on and the indices closed at their highs of the day. The Dow gained 69-points. We didn't see new highs yesterday, but they're not far off. There is one technical aspect that may be a roadblock, as you'll see in the S&P 500 charts below.
Daily TSP Funds Return

I guess we're only getting one day pullbacks now -- enough of those long two and three day dips we saw in December. :^)

Fresh 2020 inflows into stock funds tends to be why we have a strong positive seasonal bias to start a new year, but that's basically over now, and perhaps delayed a day after Friday's scare. There are some outlier big green bars over the next few weeks on the January seasonality calendar, likely due to some earnings releases in prior years, but for the most part the positive bias turns neutral to modestly bearish over the next 2 to 3 weeks.


Chart provided courtesy of www.sentimentrader.com



There are different angles of approach for market speculators. One is technical analysis, and another is fundamentalist. I am much more of a technical analyst, although I'd like to think that the fundamentals come out in the charts. Technical analysts look at the charts, while fundamentals look more at the balance sheets. There's another approach that are called trend traders who stick with the prevailing trend, and change course as the market direction dictates.

Right now the trend traders are probably doing best - and we're not talking about the buy and holders who have obviously always benefit from rising markets. The difference between these two is that when the market eventually turns, the trend traders will try to position themselves for the new downtrend while the buy and holders will take the brunt of any losses and hope diversification will keep them from being crushed during major market meltdowns.

I would have to assume that fundamentalists are underinvested just because of the historically high valuations that we see in stocks, based on fundamental indicators such as Price / Earnings ratios, and the "MAPE" which is a margin adjusted P/E ratio, which is near all-time highs.

Being more of a technical analyst I have been torn in recent months where the charts look very strong, but the indicators are firing a lot of warning shots. When stocks ignore the warning signs it generally leads to a nasty correction, but you never know when it might take place, and the rally can continue much longer than you think is possible.

We had a little taste on Friday, but those headline driven pullbacks are often temporary knee-jerk reactions that don't last long.

Then there's the headline that moves the market, the knee-jerk snap back rally occurs, but that headline keeps popping its head up and investors eventually take notice. We saw that in early 2018 when we had the first tariff driven correction, and for nearly two years we continued to rise and fall on those trade headlines.

Will this airstrike in the Middle East blow over, or was this just the first wave that will set the tone for 2020?
The December Jobs Report will be released on Friday and estimates are looking for a gain of about 160,000 jobs, and an unemployment rate of 3.5%




The S&P 500 (C-fund) added to Friday's loss to start the day on Monday, but the dip buyers were ready and we saw about half of Friday's losses recovered. As mentioned above, the market was still within that window of new year inflows which does tend to keep the indices buoyant in early January, but that's about over. Still, the trend is up, and has been for a while now. We know these kind of climbs can fail quickly, but you never know when.




A close look at the chart shows that technically there was an open gap created on Friday that has not been filled yet, and that could be an upside target. The gap was made when the S&P 500 closed at its highs on Thursday near 3258, then only got as high as 3246 on Friday, so that can be considered a 12 point gap. Yesterday's high was 3247 so there's still 11 points in that gap that could get filled in the short-term, but whether it holds as resistance there or now, I don't know, but that is a possibility. There's also still a gap open down near 3206.




The DWCPF (S-fund) dropped at the open, successfully tested that rising support line again, and ended the day with modest gains.




The EFA posted a decent 0.39% gain but as we talked about yesterday, the I-fund was over paid on Friday and for that reason Monday's price was a lot lower than the EFA might indicate, -0.52%.




Once again the Volatility Index popped above that key 200-day EMA, but settled below it. Fear in the morning has been turning into high fives from bulls by the afternoon.




The AGG (F-fund / bonds) hit the highs from last October yesterday before pulling back. This looks like a double top but we actually saw the AGG near the same level back in late August and early September, so that resistance line may not hold too long.




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

Tom Crowley


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

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SPY (C Fund) (delayed)

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

(Stockcharts.com Real-time)
EFA (I Fund) (delayed)

(Stockcharts.com Real-time)
AGG (F Fund) (delayed)

(Stockcharts.com Real-time)

Yahoo Finance Realtime TSP Fund Tracking Index Quotes