Stocks ended nearly flat on Monday but of course that was not the story. The story was massive volatility as the Dow traded in another 2500-point range, and the S&P 500 traded in a 411-point range and incredibly the low and high came within the first hour of trading. Bonds and the F-fund were hit hard as yields rebounded, and the I-fund had to deal with another rally in the dollar, and it lagged.
This is an extremely dangerous market as is the case anytime volatility is this elevated, but historically we also often get the largest daily gains following devastating damage.
I've always hated the argument that if you are out of the stock market during the best X amount of days in the market over the last X amount of years, your return is this much worse than the return of the S&P 500. Of course.
But guess what? The biggest daily stock market gains usually come right after the worst losses, so if you missed the gains of the biggest one day rallies, it probably means you missed the selling as well.
Now selling after the market has already plummeted will have that negative effect on your returns. Some people do it to stop the bleeding because they can't take the pain of the losses anymore, but as we've mentioned before, there's that old famous quote from Nathan Rothschild's that said, "The time to buy is when there's blood in the streets."
We don't have to be at a market bottom to make money on the long side. We can look for temporary lows that may precede a relief rally, then you try to do it again.
I know I've posted a lot of these charts before but they are worth repeating because this market isn't about fundamentals right now. It's past that and now it's about emotion and extreme sentiment. I'd say over the next few weeks the toughest decision will be if and when to sell a rally. Will they last days or weeks, or even months?
Here's the last bear market which was in 2022. Look at the size, and length, of some of those bear market rallies. Mid-June thru mid-August was a gain of almost 700 S&P 500 points, and mid-October to December 1 was 600. Yet it remained in a downtrend all year.
We're likely to see another shake out or two, but snap back rallies won't be far behind. It's easy to get whipsawed out during extremes so it's good to have a plan in mind about what you want to do at certain levels, and when it happens, don't change your mind. You're not in a good a frame of mind when the market is open and whipping around.
The S&P 500 nearly tested the 200-week moving average on the weekly chart already, and that's one quick elevator ride down. Maybe the Covid crash was a rare equal comparison. The question is, will that moving average hold as it often does? It got within 90 points of it yesterday and it probably will get tested at some point, but we may need to see a little rally first as the indies are extremely oversold in the short-term.
Here's the S&P 500 chart and yesterday was day three of the high volume capitulation-like selling. I don't know if yesterday's eventual stability in the final few hours of trading means the relief is coming now, but think about who would be selling in the coming days that hasn't sold already? The fact that yesterday's 173 point rally at the highs got sold tells us that there are those willing to sell the rallies, but again, if they didn't sell that rally, what were they waiting for?
Yesterday's sell off in bonds and rally in yields was interesting. We've all been talking about the economy weakening and possibility of a recession, yet yields went flying higher? Like stocks, yields have come down quickly and this was likely a temporary snap back rally. The resistance was tested at the bottom of that bear flag, where the yield started to pull back again.
Buckle up. You're very possibly going to see more big swings in the indices. What are you going to do if we get a big rally in the coming day? Start buying? Start selling. Stay frozen? All are valid options but as I said above, having a plan before that open bell rings will make things easier on you.
DWCPF (S-fund) bounced back from its opening sell off and it actually attempted to fill Friday's gap with that huge intraday rally, but it failed by the close and created a negative outside reversal day, although the fact that it closed in the middle of its daily range may negate that a bit.
ACWX (I-fund) took one on the chin and it may be the timing of the closing of the overseas markets that kept it down, but once again the dollar rallied putting additional pressure on the foreign markets.
Here's that 10-year yield chart again and you can see what the rally did to the BND (F-fund) chart.
I'm leaning on that loss being a temporary profit taking day because unless the economy is a lot stronger than economists are saying, and or / inflation is coming back strongly, this should continue to be in an uptrend, unless there's something brewing that the bond market knows that we don't.
Thanks so much for reading! We'll see you back here tomorrow.
Tom Crowley
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
Questions, comments, or issues with today's commentary? We can discuss it in the Forum.
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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 may use additional methods and strategies to determine fund positions.
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Here's a closer look at the intraday chart of the S&P 500, just because it is so unusual. The low was made within minutes of the opening bell, and the high about 30 minutes later. It was up 173-points at its high and down 238-points at its low. To put that in context, that was an 8.5% rally from low to high... in about 30 minutes! It eventually closed right about in the middle of the two, down 12-points.
This is an extremely dangerous market as is the case anytime volatility is this elevated, but historically we also often get the largest daily gains following devastating damage.
I've always hated the argument that if you are out of the stock market during the best X amount of days in the market over the last X amount of years, your return is this much worse than the return of the S&P 500. Of course.
But guess what? The biggest daily stock market gains usually come right after the worst losses, so if you missed the gains of the biggest one day rallies, it probably means you missed the selling as well.
Now selling after the market has already plummeted will have that negative effect on your returns. Some people do it to stop the bleeding because they can't take the pain of the losses anymore, but as we've mentioned before, there's that old famous quote from Nathan Rothschild's that said, "The time to buy is when there's blood in the streets."
We don't have to be at a market bottom to make money on the long side. We can look for temporary lows that may precede a relief rally, then you try to do it again.
I know I've posted a lot of these charts before but they are worth repeating because this market isn't about fundamentals right now. It's past that and now it's about emotion and extreme sentiment. I'd say over the next few weeks the toughest decision will be if and when to sell a rally. Will they last days or weeks, or even months?
Here's the last bear market which was in 2022. Look at the size, and length, of some of those bear market rallies. Mid-June thru mid-August was a gain of almost 700 S&P 500 points, and mid-October to December 1 was 600. Yet it remained in a downtrend all year.
We're likely to see another shake out or two, but snap back rallies won't be far behind. It's easy to get whipsawed out during extremes so it's good to have a plan in mind about what you want to do at certain levels, and when it happens, don't change your mind. You're not in a good a frame of mind when the market is open and whipping around.
The S&P 500 nearly tested the 200-week moving average on the weekly chart already, and that's one quick elevator ride down. Maybe the Covid crash was a rare equal comparison. The question is, will that moving average hold as it often does? It got within 90 points of it yesterday and it probably will get tested at some point, but we may need to see a little rally first as the indies are extremely oversold in the short-term.
Here's the S&P 500 chart and yesterday was day three of the high volume capitulation-like selling. I don't know if yesterday's eventual stability in the final few hours of trading means the relief is coming now, but think about who would be selling in the coming days that hasn't sold already? The fact that yesterday's 173 point rally at the highs got sold tells us that there are those willing to sell the rallies, but again, if they didn't sell that rally, what were they waiting for?
Yesterday's sell off in bonds and rally in yields was interesting. We've all been talking about the economy weakening and possibility of a recession, yet yields went flying higher? Like stocks, yields have come down quickly and this was likely a temporary snap back rally. The resistance was tested at the bottom of that bear flag, where the yield started to pull back again.
Buckle up. You're very possibly going to see more big swings in the indices. What are you going to do if we get a big rally in the coming day? Start buying? Start selling. Stay frozen? All are valid options but as I said above, having a plan before that open bell rings will make things easier on you.
DWCPF (S-fund) bounced back from its opening sell off and it actually attempted to fill Friday's gap with that huge intraday rally, but it failed by the close and created a negative outside reversal day, although the fact that it closed in the middle of its daily range may negate that a bit.
ACWX (I-fund) took one on the chin and it may be the timing of the closing of the overseas markets that kept it down, but once again the dollar rallied putting additional pressure on the foreign markets.
Here's that 10-year yield chart again and you can see what the rally did to the BND (F-fund) chart.
I'm leaning on that loss being a temporary profit taking day because unless the economy is a lot stronger than economists are saying, and or / inflation is coming back strongly, this should continue to be in an uptrend, unless there's something brewing that the bond market knows that we don't.
Thanks so much for reading! We'll see you back here tomorrow.
Tom Crowley
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
Questions, comments, or issues with today's commentary? We can discuss it in the Forum.
Daily Market Commentary Archives
For more info our other premium services, please go here... www.tsptalk.com/premiums.php
To get weekly or daily notifications when we post new commentary, sign up HERE.
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 may use additional methods and strategies to determine fund positions.
