The worst fears came to fruition yesterday as stocks opened sharply lower to the point where the 7% loss 15-minute trading halt had to be issued. Stocks did stabilize some when they resumed trading but the indices slipped near the close, ending the day near their lows of the day. The Dow lost 2014-points while oil, which was one of the catalysts, declined about 25% - an historic move.
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The 25% drop in the price of oil couldn't have come at a worse time, adding a double dose of fear with this coronavirus hysteria. I have to admit I didn't believe the hype and I'm still suspicious about how serious the virus is, but the fear that was perpetrated has done what everyone else seemed to anticipate, and the media has their story. I thought the market would see through it, but it did not. I was wrong.
Regular readers of this commentary know that we had been adamant that the yield curve inversion in 2019 was pointing to a possible recession, or at least an economic slowdown this year, and while the data hasn't shown signs of much of a slowdown - just look at last week's jobs report - the fear of the coronavirus turned the correction into a bear market in a blink of an eye. The initial reaction off the recent highs has been worse then how the financial crisis started.
Here's the chart of the 2007 peak, and most of the 2008 bear market. The S&P 500 shot to new highs after that initial drop from the prior highs. Then several months later there was another severe drop followed by a choppy market with some extreme rallies and corrections. Then the real bear market action developed later in 2008 so this decline from all time highs right into bear market territory is very unusual.
Again I thought the response to the coronavirus was overblown, and the dramatic drop in the price of oil was suspicious, but it is was it is, and the damage is being done.
Small caps were hit hard as the Russell 2000 is filled with small banks and oil refinery companies and with yields and oil plummeting, it got crushed.
I want to give kudos to two of our premium services, Revshark's TSP Timing, and Intrepid Timer for sidestepping this decline. My TSP Talk Plus System was not so fortunately as it tends to like to buy big dips. The big dip turned into a giant decline and I got caught in it. We (The Plus system) had a good start to the year and it wasn't long ago that we were high fiving some good calls in January and February, only to have the market completely humble us in March. My apologies to the Plus subscribers on that one. It turns out that we should have been more patient. The increase in volatility should give us continued trading opportunities, if our limitations in the TSP don't get in the way too much.
At this point I think less is more as we get into uncharted territory. Trying to guess how low we can go or when we'll get a snap back rally probably can't be shown on a chart because of the emotions now involved, and the uncertainty we're seeing. So I'll post a few charts knowing that it is likely sentiment and emotions that will call the turn, and not the charts, while volatility is this high.
The S&P 500 (C-fund) gapped lower and closed near the lows adding to an already negative chart. Surprising the trading volume was higher at the prior low, and I'm not sure if that's a good thing or not. The speed of the decline would have me believe that a snap back rally is imminent, but I thought that before yesterday so what do I know?
The longer-term chart shows some possible support near 2720 which is only about 1% below yesterday's close.
The VIX was obviously higher and after hitting 60+ intraday, it closed at the highs from Friday near 55. As we talked about this is a 30 year high except for the financial crisis numbers.
The AGG (bonds / F-fund) closed slightly lower after skyrocketing at the open. Yields were in uncharted territory and got a bounce later in the day, but they're still extremely low. Once again I look at this as stretched but investors continue to throw money at bonds while stocks are tumbling.
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.
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[TD][/TD]
[TD="align: center"]
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The 25% drop in the price of oil couldn't have come at a worse time, adding a double dose of fear with this coronavirus hysteria. I have to admit I didn't believe the hype and I'm still suspicious about how serious the virus is, but the fear that was perpetrated has done what everyone else seemed to anticipate, and the media has their story. I thought the market would see through it, but it did not. I was wrong.
Regular readers of this commentary know that we had been adamant that the yield curve inversion in 2019 was pointing to a possible recession, or at least an economic slowdown this year, and while the data hasn't shown signs of much of a slowdown - just look at last week's jobs report - the fear of the coronavirus turned the correction into a bear market in a blink of an eye. The initial reaction off the recent highs has been worse then how the financial crisis started.
Here's the chart of the 2007 peak, and most of the 2008 bear market. The S&P 500 shot to new highs after that initial drop from the prior highs. Then several months later there was another severe drop followed by a choppy market with some extreme rallies and corrections. Then the real bear market action developed later in 2008 so this decline from all time highs right into bear market territory is very unusual.
Again I thought the response to the coronavirus was overblown, and the dramatic drop in the price of oil was suspicious, but it is was it is, and the damage is being done.
Small caps were hit hard as the Russell 2000 is filled with small banks and oil refinery companies and with yields and oil plummeting, it got crushed.
I want to give kudos to two of our premium services, Revshark's TSP Timing, and Intrepid Timer for sidestepping this decline. My TSP Talk Plus System was not so fortunately as it tends to like to buy big dips. The big dip turned into a giant decline and I got caught in it. We (The Plus system) had a good start to the year and it wasn't long ago that we were high fiving some good calls in January and February, only to have the market completely humble us in March. My apologies to the Plus subscribers on that one. It turns out that we should have been more patient. The increase in volatility should give us continued trading opportunities, if our limitations in the TSP don't get in the way too much.
At this point I think less is more as we get into uncharted territory. Trying to guess how low we can go or when we'll get a snap back rally probably can't be shown on a chart because of the emotions now involved, and the uncertainty we're seeing. So I'll post a few charts knowing that it is likely sentiment and emotions that will call the turn, and not the charts, while volatility is this high.
The S&P 500 (C-fund) gapped lower and closed near the lows adding to an already negative chart. Surprising the trading volume was higher at the prior low, and I'm not sure if that's a good thing or not. The speed of the decline would have me believe that a snap back rally is imminent, but I thought that before yesterday so what do I know?
The longer-term chart shows some possible support near 2720 which is only about 1% below yesterday's close.
The VIX was obviously higher and after hitting 60+ intraday, it closed at the highs from Friday near 55. As we talked about this is a 30 year high except for the financial crisis numbers.
The AGG (bonds / F-fund) closed slightly lower after skyrocketing at the open. Yields were in uncharted territory and got a bounce later in the day, but they're still extremely low. Once again I look at this as stretched but investors continue to throw money at bonds while stocks are tumbling.
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.
