08/09/11
Stocks plummeted yesterday as the crash continues. The damage has been so bad that chances are high for a large snap-back rally, but rolling the dice in this market obviously comes with high risk.
It wasn't pretty for the TSP funds. The C-fund lost 6.65% yesterday, the S-fund dropped 8.56%, the I-fund fell 6.72%, and the F-fund (bonds) gained 0.44% as investors looked for a place to put money.
The S&P 500 is already down to 1120, which was the lower end of the target of the Head and Shoulders pattern. Volume was the highest all year and it is starting to smell like capitulation out there, particularly if the large losses in the overnight futures carry over into this morning's trading.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
I have compared this breakdown to sell-off in 2008 as the TARP and debt ceiling votes in congress brought out similar results. But if you have been around the markets for a while, you may remember the summer of 1998 when the S&P 500 dropped 21% from mid-July through the end of August.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
I remember it well because at the time we were only allowed 1 transfer each month in our TSP accounts, and it had to be done by the 15th of the prior month to be effective on the first of the following month. On July 15th the market was flying high, and if you decided to buy into the C-fund, the only stock fund in the TSP at the time, it put you in the C-fund on August 1 and you were stuck there for the entire month.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
The good part was that you would have missed the late July sell-off, but like I said, you were stuck in the C-fund for all of August, which saw a loss of 14.47%. If you were scared out of the market in August and made a move to sell on August 15, to be out of the C-fund in September, you missed a big rally. Those were the days, and that is why I remember it so well.
Anyway, the losses have been brutal so far this summer but history tells us that this type of action will eventually turn into a big snap-back rally, although those rallies don't always last. Take a look at what happened during similar situations in the past...
From our friends at SentimenTrader.com:
So, a 5% to 15% rally is not out of the question in the near-term, and I would not be surprised if it started some time today or tomorrow. Fear is high enough to see this kind of reaction.
Update: It is now about 2:30 AM ET and after being down about 300-points earlier, the Dow futures are now positive. With Tuesday being an FOMC meeting, it may be like this all day - ups and downs with rumors flying.
Stocks plummeted yesterday as the crash continues. The damage has been so bad that chances are high for a large snap-back rally, but rolling the dice in this market obviously comes with high risk.
It wasn't pretty for the TSP funds. The C-fund lost 6.65% yesterday, the S-fund dropped 8.56%, the I-fund fell 6.72%, and the F-fund (bonds) gained 0.44% as investors looked for a place to put money.
The S&P 500 is already down to 1120, which was the lower end of the target of the Head and Shoulders pattern. Volume was the highest all year and it is starting to smell like capitulation out there, particularly if the large losses in the overnight futures carry over into this morning's trading.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
I have compared this breakdown to sell-off in 2008 as the TARP and debt ceiling votes in congress brought out similar results. But if you have been around the markets for a while, you may remember the summer of 1998 when the S&P 500 dropped 21% from mid-July through the end of August.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
I remember it well because at the time we were only allowed 1 transfer each month in our TSP accounts, and it had to be done by the 15th of the prior month to be effective on the first of the following month. On July 15th the market was flying high, and if you decided to buy into the C-fund, the only stock fund in the TSP at the time, it put you in the C-fund on August 1 and you were stuck there for the entire month.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
The good part was that you would have missed the late July sell-off, but like I said, you were stuck in the C-fund for all of August, which saw a loss of 14.47%. If you were scared out of the market in August and made a move to sell on August 15, to be out of the C-fund in September, you missed a big rally. Those were the days, and that is why I remember it so well.
Anyway, the losses have been brutal so far this summer but history tells us that this type of action will eventually turn into a big snap-back rally, although those rallies don't always last. Take a look at what happened during similar situations in the past...
From our friends at SentimenTrader.com:
"This table shows the only other times in modern history (since 1950) that the S&P sunk at least 5% in one day to a six-month low, after having lost at least 5% during the prior week. Note that every time, the index rebounded strongly during the next several sessions.
Chart provided courtesy of www.sentimentrader.com
"The month following most of these were also better for the bulls than bears, but volatility was extremely high, and after the short-term rebound, we saw prices violate the panic low at some point."
"The month following most of these were also better for the bulls than bears, but volatility was extremely high, and after the short-term rebound, we saw prices violate the panic low at some point."
So, a 5% to 15% rally is not out of the question in the near-term, and I would not be surprised if it started some time today or tomorrow. Fear is high enough to see this kind of reaction.
Update: It is now about 2:30 AM ET and after being down about 300-points earlier, the Dow futures are now positive. With Tuesday being an FOMC meeting, it may be like this all day - ups and downs with rumors flying.
Thanks for reading! We'll see you back here tomorrow.
Tom Crowley
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.
Tom Crowley
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.
