Stocks rallied to start the new week. The Dow picked up 101-points, or about 0.36%, while the S&P 500 and small caps gained about twice that, but we did see some of the early gains fade by the close. All in all, a good start to the week, but we've now had three days in a row where the highs of the day were made in the first hour of trading, so someone's taking profits. Bonds pulled back again.
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It's a little early for the Santa Claus rally so perhaps like 2017, and there are charts below as examples, it's coming early, and the "dip" will be during the typical post December 20th Santa Claus rally period? The market likes to keep us guessing, especially when we think we know what is going to happen.
Despite so much going on this year from the impeachment, the internal government investigations going on, the almost certainty of a Brexit now, and the 2019 yield curve inversion this year - which almost always leads to a recession, stocks just keep rolling along. Of course 'tis the season for stocks to do well, although not all of December is historically this strong.
December is an emotional time for the market in that, the year is coming to an end and there is a battle to maybe take some profits, but also a lot of window dressing for money managers stuffing their portfolios with winning stock to show in their annual report. Christmas bonuses may get invested, and trading volume will start to fall giving investors an edge over traders since bears tend to gear more toward trading than investing.
I remember the end of 2017, which is starting to remind me of the current conditions. Stocks rallied leading up to December that year, rallied in the first half of December, and right when we'd expect the December 21st - 31st Santa Claus rally, stocks dipped just a bit into the end of the year. Then the New Year started off with another bang to the upside.
It went on for 4 weeks, and as I recently posted, it all came crashing down with nearly 2 months of gains getting erased in just a few days. You just never know when it's going to happen, but it usually seems to come when you've long given up the idea of a sell-off.
I was looking through youtube videos the other day and came across this 2+ month old video from Bloomberg. They were interviewing Gary Shilling and he was introduced on the show as, "one of Wall Street's top economists and famed investor."
By the looks of it, the interview was done on about the 8th of October of this year, and it was titled...
"Investors should short the S&P 500: Gary Shilling".
https://www.youtube.com/watch?v=bL1EuhFS_u4
For those of you who may not know "short the S&P 500" means bet against it. You'd make money if the S&P 500 goes down, and lose money if it goes up.
This is not a knock on Mr. Shilling, but it just shows you how tough this game can be, even when you're considered a top economist and famed investor. This was the chart of the S&P 500 showing the day of that interview when he was telling viewers to go short (bet against stocks.)
I don't follow Gary but I have seen him over the years on CNBC and Bloomberg, etc., and he obviously knows what he's talking about. But even the best economist finds market timing can be a tough, non-exact science (or maybe art), especially when charts and indicators are near extremes, but the market ignores it. It makes us all look bad, dumb, ... fill in the blank.
For the record, I don't know where he is positioned today or if he's changed his analysis, but he could end up being correct, depending on his timeframe. There's an old saying with traders / investors and that is, "be right and sit tight", meaning stay patient with your analysis, but that can be painful at times. Other traders tell us we should abandon losing positions as quickly as possible. That 2017/2018 chart above the video was an example of when sitting tight paid off.
If you recall a while back we talked about how stocks can rally, and an inverted yield curve can steepen back ("uninvert", if you will) but while that is happening, it doesn't usually keep a recession from coming.
Here's the chart I posted back in November showing the 2006 yield curve inversion and what happened next. The 90-day / 10 year bond yield curves inverted a couple of times in 2006 and into 2007, and by the end of 2007, not only had the yield curved moved back above the inversion, but the stock market hit all-time highs in late in 2007 - just before the bull market peaked.
The 2008 recession did eventually occur, as they tend to do, and usually within a year or two of the initial inversion. That one waited almost the entire two years.
Just a reminder that the first 90-day / 10-year yield curve inversion in 2019 came in March, so it has been about nine months.
Is there going to be a recession in 2020 or 2021? I don't really know, but history suggests it's still likely. That doesn't mean stocks will be down 49% from peak to trough like the 2008 bear market. There are degrees of recessions and if you recall the 2008 recession as called "The Great Recession." I highly doubt it will be anything like that, and stocks may still end 2020 in positive territory even if we get one.
But here we are in December of 2019 and stocks are on a run, and will be, probably until you least expect it. So, expect it -- said the boy who cried wolf.
The S&P 500 (C-fund) jumped to start the new week, pushing above that one old support line that was trying to hold as resistance, but it didn't hold yesterday and it broke through. As I mentioned the other day, the trading channel has widened since that reversal low to start the month, but that blue line may try to act as support again - we'll see.
The DWCPF (S-fund) is inching closer to an all-time high finally, which would be a 15-moth high if it can do it. It could also turn into a double top if Santa isn't in a good mood.
I won't even show the chart of EFA / I-fund because it actually shows a loss on the day, and my guess is that is because a dividend may have been paid, but the chart was not adjusted. The I-fund actually did well on Monday.
The Volatility Index fell below 12 again intraday on Monday, but it reversed to close back above it again.
The AGG (F-fund / bonds) took a hit yesterday but the analysis remains the same. It's in a bull flag, which tend to break to the upside, and that's the way I'll look at it unless the formation fails.
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.
[TABLE="align: center"]
[TR]
[TD="align: center"] Daily TSP Funds Return
[TR]
[TD="align: right"] [/TD]
[/TR]
[/TABLE]
[/TD]
[TD][/TD]
[TD="align: center"]
[/TR]
[/TABLE]
It's a little early for the Santa Claus rally so perhaps like 2017, and there are charts below as examples, it's coming early, and the "dip" will be during the typical post December 20th Santa Claus rally period? The market likes to keep us guessing, especially when we think we know what is going to happen.
Despite so much going on this year from the impeachment, the internal government investigations going on, the almost certainty of a Brexit now, and the 2019 yield curve inversion this year - which almost always leads to a recession, stocks just keep rolling along. Of course 'tis the season for stocks to do well, although not all of December is historically this strong.
December is an emotional time for the market in that, the year is coming to an end and there is a battle to maybe take some profits, but also a lot of window dressing for money managers stuffing their portfolios with winning stock to show in their annual report. Christmas bonuses may get invested, and trading volume will start to fall giving investors an edge over traders since bears tend to gear more toward trading than investing.
I remember the end of 2017, which is starting to remind me of the current conditions. Stocks rallied leading up to December that year, rallied in the first half of December, and right when we'd expect the December 21st - 31st Santa Claus rally, stocks dipped just a bit into the end of the year. Then the New Year started off with another bang to the upside.
It went on for 4 weeks, and as I recently posted, it all came crashing down with nearly 2 months of gains getting erased in just a few days. You just never know when it's going to happen, but it usually seems to come when you've long given up the idea of a sell-off.
I was looking through youtube videos the other day and came across this 2+ month old video from Bloomberg. They were interviewing Gary Shilling and he was introduced on the show as, "one of Wall Street's top economists and famed investor."
By the looks of it, the interview was done on about the 8th of October of this year, and it was titled...
"Investors should short the S&P 500: Gary Shilling".
https://www.youtube.com/watch?v=bL1EuhFS_u4
For those of you who may not know "short the S&P 500" means bet against it. You'd make money if the S&P 500 goes down, and lose money if it goes up.
This is not a knock on Mr. Shilling, but it just shows you how tough this game can be, even when you're considered a top economist and famed investor. This was the chart of the S&P 500 showing the day of that interview when he was telling viewers to go short (bet against stocks.)
I don't follow Gary but I have seen him over the years on CNBC and Bloomberg, etc., and he obviously knows what he's talking about. But even the best economist finds market timing can be a tough, non-exact science (or maybe art), especially when charts and indicators are near extremes, but the market ignores it. It makes us all look bad, dumb, ... fill in the blank.
For the record, I don't know where he is positioned today or if he's changed his analysis, but he could end up being correct, depending on his timeframe. There's an old saying with traders / investors and that is, "be right and sit tight", meaning stay patient with your analysis, but that can be painful at times. Other traders tell us we should abandon losing positions as quickly as possible. That 2017/2018 chart above the video was an example of when sitting tight paid off.
If you recall a while back we talked about how stocks can rally, and an inverted yield curve can steepen back ("uninvert", if you will) but while that is happening, it doesn't usually keep a recession from coming.
Here's the chart I posted back in November showing the 2006 yield curve inversion and what happened next. The 90-day / 10 year bond yield curves inverted a couple of times in 2006 and into 2007, and by the end of 2007, not only had the yield curved moved back above the inversion, but the stock market hit all-time highs in late in 2007 - just before the bull market peaked.
The 2008 recession did eventually occur, as they tend to do, and usually within a year or two of the initial inversion. That one waited almost the entire two years.
Just a reminder that the first 90-day / 10-year yield curve inversion in 2019 came in March, so it has been about nine months.
Is there going to be a recession in 2020 or 2021? I don't really know, but history suggests it's still likely. That doesn't mean stocks will be down 49% from peak to trough like the 2008 bear market. There are degrees of recessions and if you recall the 2008 recession as called "The Great Recession." I highly doubt it will be anything like that, and stocks may still end 2020 in positive territory even if we get one.
But here we are in December of 2019 and stocks are on a run, and will be, probably until you least expect it. So, expect it -- said the boy who cried wolf.
The S&P 500 (C-fund) jumped to start the new week, pushing above that one old support line that was trying to hold as resistance, but it didn't hold yesterday and it broke through. As I mentioned the other day, the trading channel has widened since that reversal low to start the month, but that blue line may try to act as support again - we'll see.
The DWCPF (S-fund) is inching closer to an all-time high finally, which would be a 15-moth high if it can do it. It could also turn into a double top if Santa isn't in a good mood.
I won't even show the chart of EFA / I-fund because it actually shows a loss on the day, and my guess is that is because a dividend may have been paid, but the chart was not adjusted. The I-fund actually did well on Monday.
The Volatility Index fell below 12 again intraday on Monday, but it reversed to close back above it again.
The AGG (F-fund / bonds) took a hit yesterday but the analysis remains the same. It's in a bull flag, which tend to break to the upside, and that's the way I'll look at it unless the formation fails.
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.
