Stocks pulled back sharply on Thursday from Wednesday large gains but relatively speaking, the pullback was inline with a typical retracement. More on that below, but for the scoreboard, the S&P 500 gave back 3.5% yesterday and we're just in that kind of market right now as trading volume is at record levels, and investor sentiment is running on emotions. The bond market (F-fund) was down again, and the I-fund led the US funds with a smaller loss due to a sell off in the volatile dollar.
As we've been talking about, the largest one day gains almost always occur during the worst market environments. Wednesday's tremendous day of gains came on the tail of some miserable market action. Yesterday's loss was a whopper but relative to Wednesday's gains it was a typical 50% or so retracement of the rally. For the S&P 500, yesterday's 3.5% loss following the 9.5% gain would be the equivalent of a 0.35% loss following a 0.95% gain. Normal. We just have some bigger numbers and a higher VIX to deal with. And the wide moves will likely continue for a while.
Our forum member, JTH posted some very interesting data about what happens after the biggest one day rallies, and it's not usually pretty, or at least it doesn't tend to mean the worst is over yet. Here's a link to that post if interested.
Once the attempt of the "V" bottom failed in late March, it was getting more clear that this wasn't going to be a quick 10% pullback followed by run back to the old highs. Now we are on a market bottom watch and while it is possible that the lows this week could be the bottom, there is a high probability that at some point the the April 7th low of 4835 could be tested again. It doesn't have to be this week or this month. Barring a Fed bailout or something of the like, the bottoming process will take time, but that also opens the door to potentially excellent trading opportunities, if you're into that sort of thing.
The S&P 500 (C-fund) stalled on Wednesday just below 5500 near that 300-day EMA and failed to reach that level again yesterday. Now the 50-day average is crossing below the 200-day EMA. As often happens when these cross negatively, you get an oversold rebound when that occurs, but it is a warning sign about a potential bear market. That's for those who like those official titles because it's been clear since about the end of March that this was bear market action. A rally could take this up to the 5600 to 5700 area, but that resistance gets very stiff in that area.
Of course trading in our TSP accounts is like trying to run in peanut butter with those limits and deadlines, so we may not be able to take advantage of all of the moves, but sometimes overtrading can be equally ineffective.
I know some of our subscribers have told us that they used their last IFT of the month already by moving to the G-fund to avoid any further pain, but that means the possibility of missing out on the rebounds, which we have seen can be explosive. Maybe the TSP needs to make an exception to our two IFT per month rule when the VIX (Volatility Index) is above 30?
The bond market is taking a hit because of Japan and China selling our bonds as a means of retaliating and trying to push our interest rates higher. Japan may have more fire power to do damage, and the 10-year Treasury Yield chart is now pointing higher and it moved above resistance this week. But at least it makes some sense to me now. I was trying to figure out why yields would be spiking higher with the economy threatening a recession or at the least a slowdown.
We got the CPI data yesterday and it showed benign inflation data so you would have expected yields to fall, but again, China is doing their thing. Today we get the PPI (Producer Prices) and hopefully it will show inflation not getting worse. We don't need anymore problems.
Earnings season is going to get into gear and could be telling as companies give guidance for futures quarters, so we may have an idea of what they are preparing for or what they think this tariff situation will have on their bottom lines. The big market moving companies are still a few weeks away from reporting.
DWCPF (S-fund) lost a more than the C-fund as is often the case on a down day. The resistance at 2000 - 2025 would be the next test, but a good relief rally could have this testing 2100 to 2150 where those moving averages on converging. As always in a volatile market, it's high risk, high reward in the small caps.
ACWX (I-fund) held up fairly well as the dollar fell sharply again. I had mentioned that I thought the dollar could gain some strength now that the tariffs have been paused, and it did on Wednesday, but it reversed down again yesterday helping the I-fund cushion the blow.
BND (F-fund) was down yesterday so no follow through in stocks or bonds yesterday. The chart did crack below 73 so some bearish action should be expected, but it looks like the 200-day average has been formidable support so far.
Thanks so much for reading! Have a great weekend!
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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As we've been talking about, the largest one day gains almost always occur during the worst market environments. Wednesday's tremendous day of gains came on the tail of some miserable market action. Yesterday's loss was a whopper but relative to Wednesday's gains it was a typical 50% or so retracement of the rally. For the S&P 500, yesterday's 3.5% loss following the 9.5% gain would be the equivalent of a 0.35% loss following a 0.95% gain. Normal. We just have some bigger numbers and a higher VIX to deal with. And the wide moves will likely continue for a while.
Our forum member, JTH posted some very interesting data about what happens after the biggest one day rallies, and it's not usually pretty, or at least it doesn't tend to mean the worst is over yet. Here's a link to that post if interested.
Once the attempt of the "V" bottom failed in late March, it was getting more clear that this wasn't going to be a quick 10% pullback followed by run back to the old highs. Now we are on a market bottom watch and while it is possible that the lows this week could be the bottom, there is a high probability that at some point the the April 7th low of 4835 could be tested again. It doesn't have to be this week or this month. Barring a Fed bailout or something of the like, the bottoming process will take time, but that also opens the door to potentially excellent trading opportunities, if you're into that sort of thing.
The S&P 500 (C-fund) stalled on Wednesday just below 5500 near that 300-day EMA and failed to reach that level again yesterday. Now the 50-day average is crossing below the 200-day EMA. As often happens when these cross negatively, you get an oversold rebound when that occurs, but it is a warning sign about a potential bear market. That's for those who like those official titles because it's been clear since about the end of March that this was bear market action. A rally could take this up to the 5600 to 5700 area, but that resistance gets very stiff in that area.
Of course trading in our TSP accounts is like trying to run in peanut butter with those limits and deadlines, so we may not be able to take advantage of all of the moves, but sometimes overtrading can be equally ineffective.
I know some of our subscribers have told us that they used their last IFT of the month already by moving to the G-fund to avoid any further pain, but that means the possibility of missing out on the rebounds, which we have seen can be explosive. Maybe the TSP needs to make an exception to our two IFT per month rule when the VIX (Volatility Index) is above 30?
The bond market is taking a hit because of Japan and China selling our bonds as a means of retaliating and trying to push our interest rates higher. Japan may have more fire power to do damage, and the 10-year Treasury Yield chart is now pointing higher and it moved above resistance this week. But at least it makes some sense to me now. I was trying to figure out why yields would be spiking higher with the economy threatening a recession or at the least a slowdown.
We got the CPI data yesterday and it showed benign inflation data so you would have expected yields to fall, but again, China is doing their thing. Today we get the PPI (Producer Prices) and hopefully it will show inflation not getting worse. We don't need anymore problems.
Earnings season is going to get into gear and could be telling as companies give guidance for futures quarters, so we may have an idea of what they are preparing for or what they think this tariff situation will have on their bottom lines. The big market moving companies are still a few weeks away from reporting.
DWCPF (S-fund) lost a more than the C-fund as is often the case on a down day. The resistance at 2000 - 2025 would be the next test, but a good relief rally could have this testing 2100 to 2150 where those moving averages on converging. As always in a volatile market, it's high risk, high reward in the small caps.
ACWX (I-fund) held up fairly well as the dollar fell sharply again. I had mentioned that I thought the dollar could gain some strength now that the tariffs have been paused, and it did on Wednesday, but it reversed down again yesterday helping the I-fund cushion the blow.
BND (F-fund) was down yesterday so no follow through in stocks or bonds yesterday. The chart did crack below 73 so some bearish action should be expected, but it looks like the 200-day average has been formidable support so far.
Thanks so much for reading! Have a great weekend!
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.
