Stocks were mostly flat on Friday after an early rally faded to end the week. For the week, small caps lagged, but overall stocks performed well after a long awaited trade deal with China was announced. It was just "phase 1" of the deal but the market was clamoring for something after so much speculation. The I-fund did particularly well as the dollar has been falling all month, and bonds were up for the week as well.
[TABLE="align: center"]
[TR]
[TD="align: center"] Daily TSP Funds Return
[TABLE="align: center"]
[TR]
[TD="align: right"] [/TD]
[/TR]
[/TABLE]
[/TD]
[TD][/TD]
[TD="align: center"]
[/TD]
[/TR]
[/TABLE]
I think we're all a little burned out from the on again, off again trade deal and now that "phase 1" it basically behind us the question becomes, has this given the market the green light for further gains, or is the 2019 rally getting exhausted and in need of some profit taking? It could be a little of both, depending on your timeframe.
I'm certainly burned out talking about the trade deal so I'm going to go in a little different direction today. I have a lot of thoughts in my head about this but I'll try to keep it as brief as I can.
My approach to investing is obviously geared toward market timing. With stocks at all-time highs you might ask, why try to time the market? Stocks always come back, right? Well, yes. History might suggest that, but it's not really that easy.
If you were a buy and holder in 2000, you rode a 49% loss down to the 2002 lows. Think about the size of your account now and what a 49% loss would do to that. If you were near 50 years old, 55, or older, how much would that derail your retirements plans? Even if you were younger, do you know what kind of return you need to recover a 50% loss? A gain of 100% - just to get you even.
That did happen and the S&P 500 finally got back to where it was in about 2007 so it took 7 years to get you to where your money was in 2000. And guess what? It happened gain in 2008 where the S&P 500 lost 57% in that bear market, and it took another 5 years for that loss to be recovered. So that's 12 years where the S&P 500 did virtually nothing.
Of course dollar cost averaging and continued contributions takes a little of the sting out of that, but you get the picture.
But it gets worse...
Some of you are old enough to remember when Japan was the world's economic power house. Before China started to step forward, everything 30 years ago was "made in Japan." Nothing lasts forever however and the Nikkei stock market, which was the best performing market for several years, was decimated. It peaked in 1990 and to this day it has not recovered all of those losses. It was at nearly 40,000 back then and today, even after nearly tripling in the last decade is still only at 24,000. That's 30 years.
It also took 30 years for the Dow Jones to recover all of its losses from the 1929 market crash, and another nearly 30 years to recover the losses from the U.S. market peak in 1966 (Dow near 8000) to the low in 1982 (about 2100). The Dow didn't hit 8000 again until 1995.
I couldn't find a long-term chart of the London FTSE Index so I'll go with France's CAC Index which tells a similar story where it has still not recovered all of its losses from the dot com bubble bursting. We're going on 20 years now.
The U.S. market and economy has been the leader since, but there are cycles and things change. It's just a matter of when.
Obviously when you look at those charts you can see the devastating losses, but also giant bull market rallies. If you can pick your spots and make money during the rallies, but are also able to avoid some of the massive losses that were realized and are inevitable, you can come out ahead of the game and beat the buy and holders who yes, get all of the gains from every rally, but also take on all of the devastating losses along the way, and depending on when in your life those bear markets happen, avoiding as much of those losses could be the key to your retirement.
It's not easy and there's a little more to it than buying low and selling high, but I guess my point is, don't let a big year in stocks, especially if you've missed some of the rally, lull you into complacency because buy and hold isn't as rosy as it feels during the good times.
The S&P 500 (C-fund) made another new intraday high on Friday, but closed basically flat on the day and right in the middle of a fairly wide trading range that created one of those "spinning top" candlestick formations, which is a sign of indecision from investors. So at this point investors are debating whether to take profits from the 2+ month rally, or hold on for a possible continued end of year rally. We have open gaps below and a new wider trading channel that may contain the battle between those two arguments this week.
The DWCPF (S-fund) didn't make a higher high on Friday and it lagged on the day falling 0.24%. There is some resistance from the bottom of the old rising channel and the old high, however, it is still flirting with that November high. This could be the start of a mini-double top if we don't see an imminent move above 1490, although at this point there's no reason to think any pullback will be significant, and it could be healthy for small caps after the sustained 2-month move higher.
The Dow Transportation Index was also down slightly on Friday, closing well off the highs and, similar to Thursday's action couldn't quite close above that blue descending resistance line. It has been able to remain above the 50 and 200-day EMAs, which is always a plus, but as long as it stays below that 11,000 area, it is still in a short-term downtrend off the November peak.
The EFA / I-fund gapped up on Friday, and as I mentioned the dollar has played a significant role there, but a spinning top candlestick formation after a gap up can manifest a short-term reversal formation like we saw in September.
I'm not sure why I added this but I thought it was interesting that the XLE energy sector ETF seems to have stalled at the 200-day EMA yet again. Perhaps not important, but a sustained rally in stocks would probably last longer if the energy sector remained involved.
The AGG (F-fund / bonds) still looks bullish despite the big sell-off on Thursday, and the rally back on Friday told us that Thursday's sell-off was probably over done. We saw one breakout from a large bull flag in November (red), and it has since created another one (blue). It is pushing the top of that blue bull flag now and it could easily move back down to the bottom of that flag, but eventually bull flags tend to break on the upside. It may be just a matter of when.
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]
I think we're all a little burned out from the on again, off again trade deal and now that "phase 1" it basically behind us the question becomes, has this given the market the green light for further gains, or is the 2019 rally getting exhausted and in need of some profit taking? It could be a little of both, depending on your timeframe.
I'm certainly burned out talking about the trade deal so I'm going to go in a little different direction today. I have a lot of thoughts in my head about this but I'll try to keep it as brief as I can.
My approach to investing is obviously geared toward market timing. With stocks at all-time highs you might ask, why try to time the market? Stocks always come back, right? Well, yes. History might suggest that, but it's not really that easy.
If you were a buy and holder in 2000, you rode a 49% loss down to the 2002 lows. Think about the size of your account now and what a 49% loss would do to that. If you were near 50 years old, 55, or older, how much would that derail your retirements plans? Even if you were younger, do you know what kind of return you need to recover a 50% loss? A gain of 100% - just to get you even.
That did happen and the S&P 500 finally got back to where it was in about 2007 so it took 7 years to get you to where your money was in 2000. And guess what? It happened gain in 2008 where the S&P 500 lost 57% in that bear market, and it took another 5 years for that loss to be recovered. So that's 12 years where the S&P 500 did virtually nothing.
Of course dollar cost averaging and continued contributions takes a little of the sting out of that, but you get the picture.
But it gets worse...
Some of you are old enough to remember when Japan was the world's economic power house. Before China started to step forward, everything 30 years ago was "made in Japan." Nothing lasts forever however and the Nikkei stock market, which was the best performing market for several years, was decimated. It peaked in 1990 and to this day it has not recovered all of those losses. It was at nearly 40,000 back then and today, even after nearly tripling in the last decade is still only at 24,000. That's 30 years.
It also took 30 years for the Dow Jones to recover all of its losses from the 1929 market crash, and another nearly 30 years to recover the losses from the U.S. market peak in 1966 (Dow near 8000) to the low in 1982 (about 2100). The Dow didn't hit 8000 again until 1995.
I couldn't find a long-term chart of the London FTSE Index so I'll go with France's CAC Index which tells a similar story where it has still not recovered all of its losses from the dot com bubble bursting. We're going on 20 years now.
The U.S. market and economy has been the leader since, but there are cycles and things change. It's just a matter of when.
Obviously when you look at those charts you can see the devastating losses, but also giant bull market rallies. If you can pick your spots and make money during the rallies, but are also able to avoid some of the massive losses that were realized and are inevitable, you can come out ahead of the game and beat the buy and holders who yes, get all of the gains from every rally, but also take on all of the devastating losses along the way, and depending on when in your life those bear markets happen, avoiding as much of those losses could be the key to your retirement.
It's not easy and there's a little more to it than buying low and selling high, but I guess my point is, don't let a big year in stocks, especially if you've missed some of the rally, lull you into complacency because buy and hold isn't as rosy as it feels during the good times.
The S&P 500 (C-fund) made another new intraday high on Friday, but closed basically flat on the day and right in the middle of a fairly wide trading range that created one of those "spinning top" candlestick formations, which is a sign of indecision from investors. So at this point investors are debating whether to take profits from the 2+ month rally, or hold on for a possible continued end of year rally. We have open gaps below and a new wider trading channel that may contain the battle between those two arguments this week.
The DWCPF (S-fund) didn't make a higher high on Friday and it lagged on the day falling 0.24%. There is some resistance from the bottom of the old rising channel and the old high, however, it is still flirting with that November high. This could be the start of a mini-double top if we don't see an imminent move above 1490, although at this point there's no reason to think any pullback will be significant, and it could be healthy for small caps after the sustained 2-month move higher.
The Dow Transportation Index was also down slightly on Friday, closing well off the highs and, similar to Thursday's action couldn't quite close above that blue descending resistance line. It has been able to remain above the 50 and 200-day EMAs, which is always a plus, but as long as it stays below that 11,000 area, it is still in a short-term downtrend off the November peak.
The EFA / I-fund gapped up on Friday, and as I mentioned the dollar has played a significant role there, but a spinning top candlestick formation after a gap up can manifest a short-term reversal formation like we saw in September.
I'm not sure why I added this but I thought it was interesting that the XLE energy sector ETF seems to have stalled at the 200-day EMA yet again. Perhaps not important, but a sustained rally in stocks would probably last longer if the energy sector remained involved.
The AGG (F-fund / bonds) still looks bullish despite the big sell-off on Thursday, and the rally back on Friday told us that Thursday's sell-off was probably over done. We saw one breakout from a large bull flag in November (red), and it has since created another one (blue). It is pushing the top of that blue bull flag now and it could easily move back down to the bottom of that flag, but eventually bull flags tend to break on the upside. It may be just a matter of when.
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.
