Stocks followed through on Friday's big jobs report rally with another push higher on Monday. It started out a little slow, but it didn't take long for the enthusiastic buying to resume as investor look toward an economic recovery. The Dow gained 461-points and we saw gains of 1% to 2% plus in many indices with small caps outperforming.
[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've recently used words like "giddy" and "froth" to describe investors and the market action yet the momentum ignores the extremes and has continued on. Clearly we've seen evidence that what took the market down in March, the economic shutdown because of the coronavirus, is waning and that is reason to celebrate, but just as the downside may have ended with panicky, overly negative, indiscriminate selling, the rebound is more likely to end with euphoric, overly optimistic, and indiscriminate buying. I don't know how close we are to that, but you can feel it, can't you?
I don't know when this rally is going to rollover or pull back, but in the short-term the risk to reward is increasing with every push higher - just as the risk to reward was shrinking in mid to late March. Back in March it was hard to imagine stocks would ever go up again. Investor sentiment was dismal -- sell everything at any price - type of mentality. Now we're seeing signs of the flip-side, despite the indices only getting near the February highs. They were over valued then by historical measures, and they are overvalued again now.
As a matter of fact, they are as overvalued now using the Price to Earnings (P/E) Ratio as they were before the Dot Com bubble burst. Much of that is due to earnings estimates getting lowered because of the shutdown and unemployment numbers.
Chart source: [url]www.cnbc.com
[/URL]
Does that mean stocks have to rollover right away? Not necessarily, because momentum is a powerful force and stocks can move in one direction a lot longer than seems reasonable -- just as they did on the downside in March.
I wouldn't recommend buying here, but nor would I recommend to someone who is already in and has large gains to sell today because momentum got them where they are and who knows where it will stop? What you don't want to do is get married to your opinion. I am definitely guilty of that and selling too early put me on defense and in patience mode, which hasn't worked out, but we know that when the market turns it can be swift and brutal, so have an open mind about the possibility of a change coming, rather getting greedy and always wanting more.
The S&P 500 is still off from the February highs, but yesterday it reached the break-even mark for the year which is a psychological level that "could" put investors in the position of being satisfied to get their losses back, and if momentum wasn't so strong I would think they would be happy to take the profits after the three month rally.
We don't have to get another crash or bear market, but markets tend to breathe in and out, or stretch in and out like a rubber band, but they will tend to snap if pulled too far.
The S&P 500 (C-fund) reached back up to the 2019 closing prices yesterday, but there is an open gap and the February highs overhear that might be upside targets. Clearly running from 2200 to 3232 in 2.5 months has produced some extreme short-term overbought conditions so it may be tough to reach those levels without some kind of a refresh to gain more strength.
The DWCPF (S-fund) also has some upside targets but it is nearing the top of its rising trading channel.
The EFA (I-fund) broke through some resistance late last week and yesterday's rally pushed it up to that brief March relief rally peak. It's extended after rallying straight up for nearly a month, and while there's no rule that says it has to stop, we know it has to be getting tired here.
The Dow Transportation Index is doing everything right and those beaten down airline stocks have really bounced back to help. This one shot right through its rising trading channel last Thursday, but even a dip back to the top of that channel would be healthy at this point.
The price of oil bottomed well after the stock market but since the lows in mid-April it has quadrupled in price. It is now heading toward its 200-day EMA and the top of that large open gap from back in March.
The BND (F-fund) followed through on Friday's positive reversal to post a modest gain, but it is back at the peak from April, which failed last week. If stocks do take a breather we could try to make new highs here after it has moved sideways for several weeks now.
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
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've recently used words like "giddy" and "froth" to describe investors and the market action yet the momentum ignores the extremes and has continued on. Clearly we've seen evidence that what took the market down in March, the economic shutdown because of the coronavirus, is waning and that is reason to celebrate, but just as the downside may have ended with panicky, overly negative, indiscriminate selling, the rebound is more likely to end with euphoric, overly optimistic, and indiscriminate buying. I don't know how close we are to that, but you can feel it, can't you?
I don't know when this rally is going to rollover or pull back, but in the short-term the risk to reward is increasing with every push higher - just as the risk to reward was shrinking in mid to late March. Back in March it was hard to imagine stocks would ever go up again. Investor sentiment was dismal -- sell everything at any price - type of mentality. Now we're seeing signs of the flip-side, despite the indices only getting near the February highs. They were over valued then by historical measures, and they are overvalued again now.
As a matter of fact, they are as overvalued now using the Price to Earnings (P/E) Ratio as they were before the Dot Com bubble burst. Much of that is due to earnings estimates getting lowered because of the shutdown and unemployment numbers.
Chart source: [url]www.cnbc.com
[/URL]
Does that mean stocks have to rollover right away? Not necessarily, because momentum is a powerful force and stocks can move in one direction a lot longer than seems reasonable -- just as they did on the downside in March.
I wouldn't recommend buying here, but nor would I recommend to someone who is already in and has large gains to sell today because momentum got them where they are and who knows where it will stop? What you don't want to do is get married to your opinion. I am definitely guilty of that and selling too early put me on defense and in patience mode, which hasn't worked out, but we know that when the market turns it can be swift and brutal, so have an open mind about the possibility of a change coming, rather getting greedy and always wanting more.
The S&P 500 is still off from the February highs, but yesterday it reached the break-even mark for the year which is a psychological level that "could" put investors in the position of being satisfied to get their losses back, and if momentum wasn't so strong I would think they would be happy to take the profits after the three month rally.
We don't have to get another crash or bear market, but markets tend to breathe in and out, or stretch in and out like a rubber band, but they will tend to snap if pulled too far.
The S&P 500 (C-fund) reached back up to the 2019 closing prices yesterday, but there is an open gap and the February highs overhear that might be upside targets. Clearly running from 2200 to 3232 in 2.5 months has produced some extreme short-term overbought conditions so it may be tough to reach those levels without some kind of a refresh to gain more strength.
The DWCPF (S-fund) also has some upside targets but it is nearing the top of its rising trading channel.
The EFA (I-fund) broke through some resistance late last week and yesterday's rally pushed it up to that brief March relief rally peak. It's extended after rallying straight up for nearly a month, and while there's no rule that says it has to stop, we know it has to be getting tired here.
The Dow Transportation Index is doing everything right and those beaten down airline stocks have really bounced back to help. This one shot right through its rising trading channel last Thursday, but even a dip back to the top of that channel would be healthy at this point.
The price of oil bottomed well after the stock market but since the lows in mid-April it has quadrupled in price. It is now heading toward its 200-day EMA and the top of that large open gap from back in March.
The BND (F-fund) followed through on Friday's positive reversal to post a modest gain, but it is back at the peak from April, which failed last week. If stocks do take a breather we could try to make new highs here after it has moved sideways for several weeks now.
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
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.
