Stocks had a wild ride on quadruple witching Friday where many options and futures contracts were expiring, triggering a spike in trading volume. There was also index rebalancing going on, plus Tesla was being added to the S&P 500, so it was quite a day. Yet, after all was said and done, stocks closed mixed with modest losses (and some gains) in the various indices. The Dow lost 124-points while the small caps managed another gain.
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Right after the bell on Friday Nike reported a strong earnings report but more importantly, it was announced that the banks passed their stress tests and they are also now allowed to buy back their own shares again. The trading after hours was very positive. Whether that translates into a positive opening on Monday remains to be seen, especially with the stimulus negotiations still going on as I write this on Sunday afternoon (futures haven't opened yet.) But here's what happened to the SPY (S&P 500), IWM (the Russell 2000), and XLF (the financial sector) on Friday, and then in after hours trading in the green boxes.
Update Sunday evening: "McConnell says Congress has agreed to $900 billion coronavirus stimulus deal."
Now the concern may be whether it was large enough or if we get a "sell the news" reaction, to the many rumors of deal that were bought.
Obviously the dot com bubble during 1999 was nothing like the year that was 2020, which has been just so insane in almost every aspect. From COVID, the plunging economy and market crash, and the dramatic recovery of stocks, to shutdowns, racial and political protests and riots, all facets of the election, all the way down to an NFL football team that had to change their name to "Football Team", and everything in between. Just a crazy year. Yet the stock market survived and thrived.
It is this kind of action that will lull investors into believing stocks always bounce right back, every dip needs to be bought, and there is no reason to ever sell. In the very long term, that may be true, but here's a reminder about what happened to that Nasdaq when the bubble burst after the peak of March of 2000.
By the time the bear market bottomed in the Nasdaq two and half years later in October of 2002, the index was down 78.4% off its highs, and it took 15 years before it got back to those March 2000 highs.
So bubbles pop, and they hurt, and depending where you are in your journey to, transitioning into, or are already in retirement, buy and hold may not be the best option unless you have some serious diversification in there as well, although little was spared from 2000 - 2002.
The precipitous and quick decline in stocks last winter, and the equally explosive and rapid rebound really chewed up my trading system, and spit it out. I had an awful year. I think many market timers may be in the same situation because I doubt there were any systems that could have been on the same page as the unprecedented action. As I mentioned before, if you look at our AutoTrackerwe had some members have extraordinary years, and many of them just happened to make a great move or two at the right time, whether out of instinct or luck, but most pros struggled, or at least underperformed the market averages.
So again, 2020 may have "taught" the average investor to just buy and hold because it appears stocks just come back every time. That's not always the case, at least in any short time frame.
Take Japan. They had explosive growth, and basically 0% interest rates in the late 80's and their stock market was soaring. The Nikkei hit a high in 1989 and then it started to decline, and 20 years later it made a low. Do you know when it finally recovered from those losses? I'll let you know when it happens. It went from nearly 40,000 in 1989, down to 7500 in 2009, and still today it has only gotten back to about 27,000, so it is still down 33% - more than 30 years later.
So that's the story. Yes, we could get a rally on a stimulus deal, and holiday Santa Claus rally, and a continued recovery from one of the most devastating economic disasters our country has ever experienced in such a short period of time, but if this economy and market is being built on stimulus, Fed funds, and 0% interest rates, I don't think it is too far fetched to suggest that we could have a Japanese like stock market at some point in the future.
That said, the Senate did agree to a stimulus deal, and it is the week before Christmas so we "should" enjoy a positive push in these final weeks of the year. The odds and history favor bullish action over the coming couple weeks, but given the craziness of 2020, how surprising would it really be if stocks went down to finish year?
As we've said before, the bears (usually short-term traders) generally take time off this time of year, but the market continues to be fed its normal dose of paycheck contributions from pension and 401K's (and the TSP) and that is one of the reasons why this time of year is generally positive. Of course black swan events can be quite disruptive in light trading environments.
The S&P 500 (C-fund) was down on Friday but the strong close actually created a fairly bullish continuation pattern, and as I mentioned above, the after hours trading on Friday was bullish, and positive enough to actually create a positive outside reversal day on the S&P 500 futures chart (not this chart.) The rising wedge type formations we see below are certainly vulnerable patterns. The question is whether the bears will be around over the next two weeks to do anything about it.
The weekly chart shows us just how stretched things are, and how quickly things can snap back into a more sustainable angle of incline, both from breakouts above and below.
The DWCPF Index / S-fund has been on a consistent tear since that late October low. That makes support quite thin under that narrow trading channel.
The Dow Transportation Index had rallied strongly on Thursday and it looks like it was taking the bear flag out of the picture, but Friday's losses puts that very much back in play again. There was a positive reversal so the bulls may have the advantage to start the day on Monday.
EFA / I-fund fell and it was an early rally in the dollar on Friday (which just about filled an overhead open gap) that did some of the damage, but by the close the dollar slipped back to be up only 0.03% on the day. The EFA remains in its narrow rising trading channel.
BND (Bonds / F-fund) was down slightly and it has been churning in the 88.00 - 88.20 area for many days now. It is still generally bullish being that it is trading above that bull flag, and the 20 (not shown) and 50-day EMAs.
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]
Right after the bell on Friday Nike reported a strong earnings report but more importantly, it was announced that the banks passed their stress tests and they are also now allowed to buy back their own shares again. The trading after hours was very positive. Whether that translates into a positive opening on Monday remains to be seen, especially with the stimulus negotiations still going on as I write this on Sunday afternoon (futures haven't opened yet.) But here's what happened to the SPY (S&P 500), IWM (the Russell 2000), and XLF (the financial sector) on Friday, and then in after hours trading in the green boxes.
Update Sunday evening: "McConnell says Congress has agreed to $900 billion coronavirus stimulus deal."
Now the concern may be whether it was large enough or if we get a "sell the news" reaction, to the many rumors of deal that were bought.
Obviously the dot com bubble during 1999 was nothing like the year that was 2020, which has been just so insane in almost every aspect. From COVID, the plunging economy and market crash, and the dramatic recovery of stocks, to shutdowns, racial and political protests and riots, all facets of the election, all the way down to an NFL football team that had to change their name to "Football Team", and everything in between. Just a crazy year. Yet the stock market survived and thrived.
It is this kind of action that will lull investors into believing stocks always bounce right back, every dip needs to be bought, and there is no reason to ever sell. In the very long term, that may be true, but here's a reminder about what happened to that Nasdaq when the bubble burst after the peak of March of 2000.
By the time the bear market bottomed in the Nasdaq two and half years later in October of 2002, the index was down 78.4% off its highs, and it took 15 years before it got back to those March 2000 highs.
So bubbles pop, and they hurt, and depending where you are in your journey to, transitioning into, or are already in retirement, buy and hold may not be the best option unless you have some serious diversification in there as well, although little was spared from 2000 - 2002.
The precipitous and quick decline in stocks last winter, and the equally explosive and rapid rebound really chewed up my trading system, and spit it out. I had an awful year. I think many market timers may be in the same situation because I doubt there were any systems that could have been on the same page as the unprecedented action. As I mentioned before, if you look at our AutoTrackerwe had some members have extraordinary years, and many of them just happened to make a great move or two at the right time, whether out of instinct or luck, but most pros struggled, or at least underperformed the market averages.
So again, 2020 may have "taught" the average investor to just buy and hold because it appears stocks just come back every time. That's not always the case, at least in any short time frame.
Take Japan. They had explosive growth, and basically 0% interest rates in the late 80's and their stock market was soaring. The Nikkei hit a high in 1989 and then it started to decline, and 20 years later it made a low. Do you know when it finally recovered from those losses? I'll let you know when it happens. It went from nearly 40,000 in 1989, down to 7500 in 2009, and still today it has only gotten back to about 27,000, so it is still down 33% - more than 30 years later.
So that's the story. Yes, we could get a rally on a stimulus deal, and holiday Santa Claus rally, and a continued recovery from one of the most devastating economic disasters our country has ever experienced in such a short period of time, but if this economy and market is being built on stimulus, Fed funds, and 0% interest rates, I don't think it is too far fetched to suggest that we could have a Japanese like stock market at some point in the future.
That said, the Senate did agree to a stimulus deal, and it is the week before Christmas so we "should" enjoy a positive push in these final weeks of the year. The odds and history favor bullish action over the coming couple weeks, but given the craziness of 2020, how surprising would it really be if stocks went down to finish year?
As we've said before, the bears (usually short-term traders) generally take time off this time of year, but the market continues to be fed its normal dose of paycheck contributions from pension and 401K's (and the TSP) and that is one of the reasons why this time of year is generally positive. Of course black swan events can be quite disruptive in light trading environments.
The S&P 500 (C-fund) was down on Friday but the strong close actually created a fairly bullish continuation pattern, and as I mentioned above, the after hours trading on Friday was bullish, and positive enough to actually create a positive outside reversal day on the S&P 500 futures chart (not this chart.) The rising wedge type formations we see below are certainly vulnerable patterns. The question is whether the bears will be around over the next two weeks to do anything about it.
The weekly chart shows us just how stretched things are, and how quickly things can snap back into a more sustainable angle of incline, both from breakouts above and below.
The DWCPF Index / S-fund has been on a consistent tear since that late October low. That makes support quite thin under that narrow trading channel.
The Dow Transportation Index had rallied strongly on Thursday and it looks like it was taking the bear flag out of the picture, but Friday's losses puts that very much back in play again. There was a positive reversal so the bulls may have the advantage to start the day on Monday.
EFA / I-fund fell and it was an early rally in the dollar on Friday (which just about filled an overhead open gap) that did some of the damage, but by the close the dollar slipped back to be up only 0.03% on the day. The EFA remains in its narrow rising trading channel.
BND (Bonds / F-fund) was down slightly and it has been churning in the 88.00 - 88.20 area for many days now. It is still generally bullish being that it is trading above that bull flag, and the 20 (not shown) and 50-day EMAs.
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.
