Stocks ended the week on a sour note, at least in the U.S., as we saw the Dow, S&P 500, and Nasdaq fall modestly on Friday. The jobs report came in a little weak and may have had something to do with the losses, although the initial reaction in the morning was positive. The I-fund held onto a gain and bonds (F-fund) had a strong day, but both of those funds were down for the week.
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The December Jobs Report missed estimates by about 15,000. Nothing serious but it seemed to give investors pause with stocks rallying to levels that may be priced for perfection.
Earnings season gets underway this week and that can also be a reason for investors to take some profits - buy the rumor, sell the news - as historically the slower part of the month of January tends to come during the 2nd and 3rd weeks.
Is it worth trying to step aside if you things stocks are due for a pullback, or is it too tough to time the market gyrations on a day to day basis, and better just to hold on?
Why do we try to time the market? Why not just buy and hold - stocks always rally back, don't they? That's the question we all ask when stocks are performing like they are now and did in 2019.
Ciovacco Capital put out a video this weekend talking about buy and hold versus managing an account, and they articulate it much better than I've been able to.
And here's a link to their video, which I found very interesting and may be worth your time if you are trying to manage your account, or having someone else do it for you - or if you're thinking about becoming a buy and holder.
[url]https://www.youtube.com/watch?v=EC7RbbYQi78
[/URL]
It also made me feel a little better about my 15.5% return in my TSP account in 2019, when the S&P 500 was up closer to 29%. Most hedge funds did much worse, and the reason is because of the "V" bottom to start the year, when stocks looked their worst they were protecting clients' accounts, so the vertical rally that followed was tough to catch, and those who did catch it probably took the brunt of the 20% decline to end 2018. I actually bought early into it early but sold after a 2% gain that month, and the S&P 500 kept going gaining 8% that January, while the S-fund jumped an amazing 11.6% that month. They explain more in the video, so go ahead and watch it if interested - I'll wait......
OK, got it? Good. Now, let's move on so I can stop dwelling on the past and start focusing on 2020.
The S&P 500 (C-fund) rallied early after he release of the December jobs Report on Friday, but as the day wore on we saw some selling - something we haven't seen a lot of in the recent months. It could be considered a negative reversal day and that middle rising support line was the only thing that kept it from becoming a more sinister outside negative reversal day. The trend is clearly still positive and technically there's not a whole lot wrong here, until you look under the hood at some of the extremes in things like investor sentiment and a lack of firm support below should 3200 give way.
The DWCPF (S-fund) is just one day off its recent highest close, and still in a rising channel, although testing the rising support line now already. It looks like a very bullish chart, but...
...the S&P 500 chart looked very similar in the fall of 2018, just before...
... everything changed.
The difference of course was the Fed, who at that time was putting the breaks on the economy by raising interest rates. Once they reversed that strategy we got the 2019 rally, as they began a series of rate cuts.
They are no longer cutting rates, and the market may have already reacted to that, but the effects of the lower rates may be creeping into the economy now.
That doesn't mean a recession is off the table, or at least an economic slowdown, and history suggests that. This is an old chart showing that yield curve inversion from back in 2006 and into 2008. Last March it inverted again and history shows that the last 7 times that the 90-day and 10-year bond yields inverted, a recession followed within 24 months.
Even back then, just before the Great Recession, the stock market was making new highs after the inversion and the yield curve was steepening dramatically, as it is now, when stocks finally peaked and the bear market began. The Fed was frantically cutting rates starting in September of 2007, and it shouldn't be a surprise that the S&P 500 made new highs in October of 2007.
We don't need to see a bear market, or a anything close to what happened in 2008 for this to be right, however. But history suggests that an economic slowdown and perhaps a correction of some sort is very possible. The charts do look good, and that's the rub. What do you think investors were thinking in the fall of 2007 when interest rates were being cut and stocks were making all time highs? Probably that they dodged a bullet from that inverted yield curve the year before, and that the Fed had saved them. Boy were they wrong.
The EFA was down on Friday but the I-fund was up, and I understand it's not always easy for the TSP to put a price on the I-fund each day because of the overnight trading in the international markets, but it seems like they can do a better job. They'll have to make another adjustment today, I assume.
The dollar has been rallying over the last week or so and that has the I-fund moving sideways to slightly lower off its highs. There is some overhead resistance not far above on the UUP chart, and the question is whether it is going to back off again, or finally breakout.
The longer-term chart of UUP shows a huge bull flag. It may it break out this time, I don't know, but with the 200-day EMA showing strong support below, it seems like it is only a matter of time.
The AGG (F-fund / bonds) is also taking some of its cues from the dollar. It's not a tick by tick comparison, but bonds also rallied into September / October and started to make a flag-like pattern. This is actually more of a cup and handle consolidation, which has the same basic effect. That is, a strong rally stalls, consolidates and forms a base from which to propel to a new leg higher. That's the theory anyway, and it is a strong tendency. It can just take a lot longer to happen than we can stay patient to let it play out.
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]
The December Jobs Report missed estimates by about 15,000. Nothing serious but it seemed to give investors pause with stocks rallying to levels that may be priced for perfection.
Earnings season gets underway this week and that can also be a reason for investors to take some profits - buy the rumor, sell the news - as historically the slower part of the month of January tends to come during the 2nd and 3rd weeks.
Is it worth trying to step aside if you things stocks are due for a pullback, or is it too tough to time the market gyrations on a day to day basis, and better just to hold on?
Why do we try to time the market? Why not just buy and hold - stocks always rally back, don't they? That's the question we all ask when stocks are performing like they are now and did in 2019.
Ciovacco Capital put out a video this weekend talking about buy and hold versus managing an account, and they articulate it much better than I've been able to.
And here's a link to their video, which I found very interesting and may be worth your time if you are trying to manage your account, or having someone else do it for you - or if you're thinking about becoming a buy and holder.
[url]https://www.youtube.com/watch?v=EC7RbbYQi78
[/URL]
It also made me feel a little better about my 15.5% return in my TSP account in 2019, when the S&P 500 was up closer to 29%. Most hedge funds did much worse, and the reason is because of the "V" bottom to start the year, when stocks looked their worst they were protecting clients' accounts, so the vertical rally that followed was tough to catch, and those who did catch it probably took the brunt of the 20% decline to end 2018. I actually bought early into it early but sold after a 2% gain that month, and the S&P 500 kept going gaining 8% that January, while the S-fund jumped an amazing 11.6% that month. They explain more in the video, so go ahead and watch it if interested - I'll wait......
OK, got it? Good. Now, let's move on so I can stop dwelling on the past and start focusing on 2020.
The S&P 500 (C-fund) rallied early after he release of the December jobs Report on Friday, but as the day wore on we saw some selling - something we haven't seen a lot of in the recent months. It could be considered a negative reversal day and that middle rising support line was the only thing that kept it from becoming a more sinister outside negative reversal day. The trend is clearly still positive and technically there's not a whole lot wrong here, until you look under the hood at some of the extremes in things like investor sentiment and a lack of firm support below should 3200 give way.
The DWCPF (S-fund) is just one day off its recent highest close, and still in a rising channel, although testing the rising support line now already. It looks like a very bullish chart, but...
...the S&P 500 chart looked very similar in the fall of 2018, just before...
... everything changed.
The difference of course was the Fed, who at that time was putting the breaks on the economy by raising interest rates. Once they reversed that strategy we got the 2019 rally, as they began a series of rate cuts.
They are no longer cutting rates, and the market may have already reacted to that, but the effects of the lower rates may be creeping into the economy now.
That doesn't mean a recession is off the table, or at least an economic slowdown, and history suggests that. This is an old chart showing that yield curve inversion from back in 2006 and into 2008. Last March it inverted again and history shows that the last 7 times that the 90-day and 10-year bond yields inverted, a recession followed within 24 months.
Even back then, just before the Great Recession, the stock market was making new highs after the inversion and the yield curve was steepening dramatically, as it is now, when stocks finally peaked and the bear market began. The Fed was frantically cutting rates starting in September of 2007, and it shouldn't be a surprise that the S&P 500 made new highs in October of 2007.
We don't need to see a bear market, or a anything close to what happened in 2008 for this to be right, however. But history suggests that an economic slowdown and perhaps a correction of some sort is very possible. The charts do look good, and that's the rub. What do you think investors were thinking in the fall of 2007 when interest rates were being cut and stocks were making all time highs? Probably that they dodged a bullet from that inverted yield curve the year before, and that the Fed had saved them. Boy were they wrong.
The EFA was down on Friday but the I-fund was up, and I understand it's not always easy for the TSP to put a price on the I-fund each day because of the overnight trading in the international markets, but it seems like they can do a better job. They'll have to make another adjustment today, I assume.
The dollar has been rallying over the last week or so and that has the I-fund moving sideways to slightly lower off its highs. There is some overhead resistance not far above on the UUP chart, and the question is whether it is going to back off again, or finally breakout.
The longer-term chart of UUP shows a huge bull flag. It may it break out this time, I don't know, but with the 200-day EMA showing strong support below, it seems like it is only a matter of time.
The AGG (F-fund / bonds) is also taking some of its cues from the dollar. It's not a tick by tick comparison, but bonds also rallied into September / October and started to make a flag-like pattern. This is actually more of a cup and handle consolidation, which has the same basic effect. That is, a strong rally stalls, consolidates and forms a base from which to propel to a new leg higher. That's the theory anyway, and it is a strong tendency. It can just take a lot longer to happen than we can stay patient to let it play out.
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.
