Stocks opened sharply lower on Thursday as a reaction to the Russian invasion of the Ukraine. It was a dramatic drop but we saw buyers step up after a lot of the damage was done by the gap down. The gap down in the S&P 500 was 70-points wide, almost 2%, and it was closed by about 2:30 PM ET. The 63 point gain in the S&P seems modest considering the wide swings, but that was a gain of 1.5% on the day. Not quite enough to get back all of Wednesday's losses but impressive enough. The Nasdaq swung more than 7% from low to high on the day, and there were plenty of reversals in almost everything.
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The S&P 500 (C-fund) created a nice positive reversal day which tends to give us at least a little more short term gains, but I circled the next trouble area should the S&P make it back to those levels. There is also some resistance at 4300.
The DWCPF (small caps / S-fund) also had the fake out breakdown and rebounded to close with a big gain. Bear markets tend to produce the biggest short-term rallies. 1950 and just over 2000 are the spots to watch for potential resistance.
The EFA (I-fund) reversed, but lagged because of the of the large gain in the dollar, and of course the overseas markets were closed well before the U.S. market reversed into positive territory. That's a large gap that may have to get revisited soon.
BND (Bonds / F-fund) was up but remains in the descending trading channel.
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
For more info our other premium services, please go here... www.tsptalk.com/premiums.html
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Thanks for reading. Have a great weekend!
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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We did get a panic-like sell off as the reaction the start of the war, and as I had been writing about in recent days, that could be a washout like capitulation that could be bought. It was a 'sell the rumor, buy the news' type of reaction.
Unfortunately I also succumbed to the panic yesterday myself as I had bought some SSO (S&P 2X long ETF) a couple of days ago looking for a reversal and rebound, and yesterday's 100+ point decline in the S&P 500 at the open after the Russian invasion was announced gave me second thoughts, so I sold SSO after a quick 30 point snap back rally in the market in the morning, and of course fast forwarding a few hours, the S&P 500 got back all of those losses and ended the day was a strong gain -- without me.
In my mind either case was possible yesterday - a snap back rally or a 200 point loss on the day, and I guessed wrong being more concerned about the potential for a big loss then the possibility of a nice gain.
Now what? I am still very concerned about the stock market but bear market rallies can be explosive, although you never know just how explosive. So far we've seen a 180-point rally off the lows in the S&P, or about 4.4% already. If we see more upside today I will get itchy to start shorting stocks (selling), but there's no rule that says the market can't go up another 4 or 5% from here, even if I am right and the market flips back over later.
Moral of the story; even if the market does exactly what you expect, it won't be clean and emotions will interfere with rational plans.
Our market has been in a bubble for quite a while, disrupted briefly by the Covid crash that was instantly fixed by the Fed and the government throwing more money at it than we have. Now we have 30 year high inflation as a result. A bubble, with inflation, with rising interest rates, oil nearing $100, geopolitical chaos, and charts that are potentially breaking down. Can we start talking bear market yet?
These charts below are tough to see but if you click on them they will expand. They basically show the 2007-2009 bear market, so what can we learn from it?
One thing we notice is that stocks don't go straight down in bear markets. We saw some very big bounces - some right at double bottoms like we saw yesterday. Some of those rallies were huge, some only lasted a few days, some months. But the trend was down and selling rallies and resistance became the play, as opposed continuously blindly buying the dips as has been the case in recent years.
This one shows the trend better, and the bear market was in full force for months when it eventually went into another gear in the fall of 2008.
The action so far does not give a lot of concrete answers yet, and the volatility could be giving the Fed a little too much to think about. The expected 0.50% interest rate hike in the March meeting is all but off the table and it will now more likely be a 0.25% hike, which sounds good for the stock market, but that will be less effective on inflation, potentially prolonging that issue.
The 10-year Treasury Yield temporarily broke down from its rising trading channel as it fell below 1.9%, but by the close it climbed right back into the channel and closed at 1.97%.
The dollar spiked and flipped over, but still closed with a big gain. Basically everything that was down early yesterday, rallied back by the close, and everything that was up early, flipped back over - including oil and gold.
The volatility should continue to remain high and there can be money made, if you don't panic like I did yesterday. The question now is whether we have more legs to this positive reversal, or if anymore upside from this 4.4% bounce off the lows is an opportunity to sell stocks that you own.
Unfortunately I also succumbed to the panic yesterday myself as I had bought some SSO (S&P 2X long ETF) a couple of days ago looking for a reversal and rebound, and yesterday's 100+ point decline in the S&P 500 at the open after the Russian invasion was announced gave me second thoughts, so I sold SSO after a quick 30 point snap back rally in the market in the morning, and of course fast forwarding a few hours, the S&P 500 got back all of those losses and ended the day was a strong gain -- without me.
In my mind either case was possible yesterday - a snap back rally or a 200 point loss on the day, and I guessed wrong being more concerned about the potential for a big loss then the possibility of a nice gain.
Now what? I am still very concerned about the stock market but bear market rallies can be explosive, although you never know just how explosive. So far we've seen a 180-point rally off the lows in the S&P, or about 4.4% already. If we see more upside today I will get itchy to start shorting stocks (selling), but there's no rule that says the market can't go up another 4 or 5% from here, even if I am right and the market flips back over later.
Moral of the story; even if the market does exactly what you expect, it won't be clean and emotions will interfere with rational plans.
Our market has been in a bubble for quite a while, disrupted briefly by the Covid crash that was instantly fixed by the Fed and the government throwing more money at it than we have. Now we have 30 year high inflation as a result. A bubble, with inflation, with rising interest rates, oil nearing $100, geopolitical chaos, and charts that are potentially breaking down. Can we start talking bear market yet?
These charts below are tough to see but if you click on them they will expand. They basically show the 2007-2009 bear market, so what can we learn from it?
One thing we notice is that stocks don't go straight down in bear markets. We saw some very big bounces - some right at double bottoms like we saw yesterday. Some of those rallies were huge, some only lasted a few days, some months. But the trend was down and selling rallies and resistance became the play, as opposed continuously blindly buying the dips as has been the case in recent years.
This one shows the trend better, and the bear market was in full force for months when it eventually went into another gear in the fall of 2008.
The action so far does not give a lot of concrete answers yet, and the volatility could be giving the Fed a little too much to think about. The expected 0.50% interest rate hike in the March meeting is all but off the table and it will now more likely be a 0.25% hike, which sounds good for the stock market, but that will be less effective on inflation, potentially prolonging that issue.
The 10-year Treasury Yield temporarily broke down from its rising trading channel as it fell below 1.9%, but by the close it climbed right back into the channel and closed at 1.97%.
The dollar spiked and flipped over, but still closed with a big gain. Basically everything that was down early yesterday, rallied back by the close, and everything that was up early, flipped back over - including oil and gold.
The volatility should continue to remain high and there can be money made, if you don't panic like I did yesterday. The question now is whether we have more legs to this positive reversal, or if anymore upside from this 4.4% bounce off the lows is an opportunity to sell stocks that you own.
The S&P 500 (C-fund) created a nice positive reversal day which tends to give us at least a little more short term gains, but I circled the next trouble area should the S&P make it back to those levels. There is also some resistance at 4300.
The DWCPF (small caps / S-fund) also had the fake out breakdown and rebounded to close with a big gain. Bear markets tend to produce the biggest short-term rallies. 1950 and just over 2000 are the spots to watch for potential resistance.
The EFA (I-fund) reversed, but lagged because of the of the large gain in the dollar, and of course the overseas markets were closed well before the U.S. market reversed into positive territory. That's a large gap that may have to get revisited soon.
BND (Bonds / F-fund) was up but remains in the descending trading channel.
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
For more info our other premium services, please go here... www.tsptalk.com/premiums.html
To get weekly or daily notifications when we post new commentary, sign up HERE.
Thanks for reading. Have a great weekend!
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.
