Stocks opened higher yesterday but rolled over quickly and over the next several hours the bulls made some attempts to push things higher, but during the last hour or two of trading, we got one of those - pardon the expression - "puking" sell-offs, and it wasn't just the stocks prices that were puking. The Dow lost 608-points and the indices closed at the lows of the day.
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Another 2%, 3%, or more than 4% decline, depending on the index, makes for some very nervous investors. A lower low creates the uncertainty of how low things can go. Rationality is nearly gone. At this point in the pullback / correction, however you want to define it, it's all about emotions, fear, panic and some start having that feeling of "get me out at any price" just as we talked about the the prior low. We got a bounce back then, and eventually get one again, but from what level?
The bomb scares we saw in the headlines yesterday did not help the situation and unfortunately, that's adds to the trigger finger selling action, and I don't know how much lower we can go, but this kind of fear comes closer to market lows than being a time to sell, yet you will see people selling into this.
If you've been a buy and holder you are obviously going to take the full brunt of any selling. Being market timers here, we've poked fun at buy and holders over the years, mostly because they had been doing so well during 2017 and into 2018 while many of us market timers lagged their returns badly, but we knew the time would come when they would have to deal with this kind of environment.
Hopefully for many of you, if you have been patient and waited for a buying opportunity or bought at some point well off the highs, which were being made just two and a half weeks if you can believe it, your patience has paid off.
Picking tops and bottoms is very tough. When stocks are rallying, they seem to go up longer and further than seems reasonable. Same with the downside. Once the momentum turns down, that momentum could push things lower for longer than seems reasonable.
But before you go thinking that I am calling for a bottom, not so fast. I'm looking for buying opportunities and weeks like this usually present short-term buying opportunities, but if this turns into a bear market, the true lows could be much lower. That doesn't mean you can't take advantage of bear market rallies, which can be explosive - although obviously more risky.
In 2008, a terrible year for stocks, there were significant relief rallies while stocks moved lower all year. It's not a buy and hold market. It is now a market timer's market.
There were several strong earnings reports from large companies released after the bell yesterday, but whether they can reverse a strong downtrend in the indices remains to be seen. The futures opened higher on that news but we know how quickly that can turn.
OK, let's look at some charts, but I won't post all of the usual stuff. We know that the individual stock funds have been beaten down and they have broken through layers of support, so let's look at more longer term charts to see where we stand compared to other major meltdowns over the last 5 - 10 years. This won't be too long because I feel this can be over-analyzed. We've been down this road many times together over the years. We're probability a lot closer to this being a good buying opportunity than being a place to sell, but you never know. Right now it's just a matter of how low will we go before it rebounds, and no one knows for sure.
The S&P 500 / C-fund is down sharply, but point-wise, it actually hasn't fallen as much as it did in February (red), although it has surpassed the decline from March (blue). There is some possible support near 2650, but in fast moving, highly emotional markets, those often self-fulfilling levels can get taken out like hot knives through butter.
The weekly chart shows the damage done, but clearly the market had gotten over extended after it went above the long-term rising trading channel of the bull market. It's about in the middle of that channel now, so it may be more appropriately priced. The problem is that corrections and pullbacks can sometimes move to the other extreme like we saw in 2011 and 2015 / 2016, where it fell below the bottom of the channel.
Those set up great opportunities in bull markets, but if we are going to see that this time it means there could be a lot more carnage done. Even a move to the bottom of the channel would hurt. The last time it was there was just before the 2016 election. And of course if this is the end of the bull market, the bottom support could get taken out and start a longer-term downtrend.
These intermediate-term indicators are all at extreme lows but there were a couple of occasions where it got worse. Notice the double bottoms at both the 2015 and 2016 lows. That may be in the cards this time too if we do get a relief rally.
The Volatility Index closed over 25 yesterday. That didn't even hit the levels we saw earlier this month when it hit 29. Now compare that to the prior corrections. This is either a good sign being a positive divergence, or it is going to get a lot worse. But overall, in the last 5 years that 25 - 30 area is about where it peaked during corrections, with just two exceptions.
AGG (bonds / F-fund) was up as investors turned to bonds over stocks, but it is now at a double dose of resistance.
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
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.
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[TR]
[TD="align: center"] Daily TSP Funds Return
[TR]
[TD="align: right"][/TD]
[/TR]
[/TABLE]
[/TD]
[TD]
[/TD]
[TD="align: center"]
[/TR]
[/TABLE]
Another 2%, 3%, or more than 4% decline, depending on the index, makes for some very nervous investors. A lower low creates the uncertainty of how low things can go. Rationality is nearly gone. At this point in the pullback / correction, however you want to define it, it's all about emotions, fear, panic and some start having that feeling of "get me out at any price" just as we talked about the the prior low. We got a bounce back then, and eventually get one again, but from what level?
The bomb scares we saw in the headlines yesterday did not help the situation and unfortunately, that's adds to the trigger finger selling action, and I don't know how much lower we can go, but this kind of fear comes closer to market lows than being a time to sell, yet you will see people selling into this.
If you've been a buy and holder you are obviously going to take the full brunt of any selling. Being market timers here, we've poked fun at buy and holders over the years, mostly because they had been doing so well during 2017 and into 2018 while many of us market timers lagged their returns badly, but we knew the time would come when they would have to deal with this kind of environment.
Hopefully for many of you, if you have been patient and waited for a buying opportunity or bought at some point well off the highs, which were being made just two and a half weeks if you can believe it, your patience has paid off.
Picking tops and bottoms is very tough. When stocks are rallying, they seem to go up longer and further than seems reasonable. Same with the downside. Once the momentum turns down, that momentum could push things lower for longer than seems reasonable.
But before you go thinking that I am calling for a bottom, not so fast. I'm looking for buying opportunities and weeks like this usually present short-term buying opportunities, but if this turns into a bear market, the true lows could be much lower. That doesn't mean you can't take advantage of bear market rallies, which can be explosive - although obviously more risky.
In 2008, a terrible year for stocks, there were significant relief rallies while stocks moved lower all year. It's not a buy and hold market. It is now a market timer's market.
There were several strong earnings reports from large companies released after the bell yesterday, but whether they can reverse a strong downtrend in the indices remains to be seen. The futures opened higher on that news but we know how quickly that can turn.
OK, let's look at some charts, but I won't post all of the usual stuff. We know that the individual stock funds have been beaten down and they have broken through layers of support, so let's look at more longer term charts to see where we stand compared to other major meltdowns over the last 5 - 10 years. This won't be too long because I feel this can be over-analyzed. We've been down this road many times together over the years. We're probability a lot closer to this being a good buying opportunity than being a place to sell, but you never know. Right now it's just a matter of how low will we go before it rebounds, and no one knows for sure.
The S&P 500 / C-fund is down sharply, but point-wise, it actually hasn't fallen as much as it did in February (red), although it has surpassed the decline from March (blue). There is some possible support near 2650, but in fast moving, highly emotional markets, those often self-fulfilling levels can get taken out like hot knives through butter.
The weekly chart shows the damage done, but clearly the market had gotten over extended after it went above the long-term rising trading channel of the bull market. It's about in the middle of that channel now, so it may be more appropriately priced. The problem is that corrections and pullbacks can sometimes move to the other extreme like we saw in 2011 and 2015 / 2016, where it fell below the bottom of the channel.
Those set up great opportunities in bull markets, but if we are going to see that this time it means there could be a lot more carnage done. Even a move to the bottom of the channel would hurt. The last time it was there was just before the 2016 election. And of course if this is the end of the bull market, the bottom support could get taken out and start a longer-term downtrend.
These intermediate-term indicators are all at extreme lows but there were a couple of occasions where it got worse. Notice the double bottoms at both the 2015 and 2016 lows. That may be in the cards this time too if we do get a relief rally.
The Volatility Index closed over 25 yesterday. That didn't even hit the levels we saw earlier this month when it hit 29. Now compare that to the prior corrections. This is either a good sign being a positive divergence, or it is going to get a lot worse. But overall, in the last 5 years that 25 - 30 area is about where it peaked during corrections, with just two exceptions.
AGG (bonds / F-fund) was up as investors turned to bonds over stocks, but it is now at a double dose of resistance.
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
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.
