Stocks rallied again on Tuesday, and like we saw on the downside in mid-to-late March where the intensity of the selling got more severe each day, this relief rally seems to be on the flip side of that as the upside bounce is being pushed to extremes, while many are leaning the wrong way. The Dow gained 559-points while the Nasdaq and S&P 500 led with gains of 3% and 4% respectively. Bonds were quiet.
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One of my biggest concerns, not for stocks, but for those waiting for a test of the lows is that it sounds like it is a crowded trade. This is what the market does - whether it's being manipulated, controlled by program traders, or just capitulation from retail investors, the market tends to go further than we anticipate that it can.
We saw it on the way down when a 10% correction became a 20% "bear market" (by some definitions), and that quickly turned into a 30% plus breakdown that scared the hell out of investors. It happened quickly, it was intense, and it didn't feel natural having happened within just a few weeks.
Now here we are with some decent news on the coronavirus as far as a possible peak in the cases and talk of an eventual end to the national shutdown. The market has exploded on this news, as well as the action from the Fed. Many of us anticipated a relief rally but not many expected this kind of reversal.
The 30% plus decline was trying to price in the expected carnage yet, other than a couple of weekly jobless claims and one monthly jobs report, all of which were awful, we haven't even seen the carnage yet. Earnings season is just starting and don't forget that the first quarter earnings include the earnings of January, February, and March, and March was really the only month that was fully impacted of the three, so the worst may be yet to come in the second quarter, April through June, and we won't see earnings from that quarter until we're into July.
Yes, there's a light at the end of the tunnel, but the economy has been purposely destroyed in order to slowdown the spread of the virus. But there isn't any reason in the world for stocks to go right back up to the old highs, which were already extremely overvalued based on historical measures when price was compared to earnings. We know what the jobs and earnings numbers are going to be like in the second quarter - worst than the first. And even once we get passed that quarter, will life go on as we knew it before this virus? Not likely.
So, I think either the market is being manipulated (less likely) or this rally is just going too far, too fast, and too may of us were expected a test of the lows, so that was probably the least likely thing the market was going to do - which was to make it easy for us. So this rally is stretching and it almost certainly will come to an abrupt end, but I don't expect the market gods to ring a bell or send us an email when it's time. It will likely come when many have finally given up on the idea of a retest.
I don't read a lot of other people's market commentary for a few reasons, one being that I don't like it to influence my take on the charts and what I see happening, but there are a few folks who I have a lot of respect for and I will read their opinions occasionally when I'm shaking my head at the action. Unfortunately most of those folks who I respect are also shaking their heads, so like I said, the market may be toying with us and making it uncomfortable for those of us who are trying to patiently wait.
I had to write this earlier than usual on Tuesday because I have to be somewhere later and I won't have time to do updated charts. I'll leave yesterday's commentary below in case you missed those charts. The message is the same - the market has just stretched the rubber band a little more.
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
04/14/20
The new week started on the downside after last week's historic weekly gains. The losses were modest and the bulls made a decent comeback in the afternoon, pushing the indices off their morning lows of the day. The Dow lost 329-points and the S&P 500 dropped 1%, while the Nasdaq was up thanks to big gains in Amazon, Netflix and the semiconductors. Small caps and the Transports each lost over 2%.
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[TD][/TD]
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The bulls and bears are doing the classic dance after a bear market rally, which is the bears expect a test of the prior lows, while the bulls are counting on the market reacting positively to the Federal Reserve and the government after having thrown the kitchen sink at the economy, with congress looking to do more.
Since the 2008 financial crisis bear market we've seen time after time attempts to keep the markets up, or at least keep the economy stimulated, by the Fed and government, so I guess it would be silly to expect anything different. It's probably why we haven't seen recession in 12 years, a lot longer than the typical business cycle might indicate. Last year's inverted yield curve suggested that we could see a recession in the coming year or so, and as if on queue, we get a virus that shuts down the economy. How about that inverted yield curve indicator? Go figure.
Volatility should remain elevated making it tough to be comfortable with any position, cash or stocks, because the swings in both direction should continue to be wide. The safe thing to do would be to sit on the sidelines and wait for the smoke to clear, but getting aggressive could be rewarded - eventually.
The big debate now is whether we see a test of the lows, and that goes back to the above paragraph and whether what the Fed and government are doing will be enough to avoid the economic fallout most are expecting. While in a bear market, we should probably expect bearish results, but this was a self-inflicted economic bear market because of the coronavirus, and perhaps it will play out differently than other bear markets?
We've seen a few 90% positive breadth thrusts in the NYSE since the recent low, which suggests a massive buying surge, and that does tend to happen near market bottoms, so perhaps this bear won't be around too long, but a successful test of the lows and filling the open gaps on the charts first would make it a lot cleaner.
Now, let's get through the first quarter earnings season first.
The S&P 500 (C-fund) was down on Monday, but it was more of a positive reversal day with that afternoon rally off the lows. It is still in a bear flag pattern and below the 50-day EMA so the bear market would suggest that it won't end well, but there's no rule that says the bear has to win.
The DWCPF (S-fund) has had a good run off the lows but that is a clear bear flag, in a bear market, so I have to give the advantage to the bears here.
The price of oil tumbled, perhaps surprisingly, after the deal between OPEC and other oil producing countries was finalized. While the supply side agreement was made and should have perhaps been bullish for oil, the industry obviously still has to deal with the dramatic drop in global demand. That's a negative outside reversal day on the chart, so that may be signaling another test of $20 is coming.
The Dow Jones Transportation Index is in a similar situation as the small caps above - it's a bear flag, in a bear market, below the moving averages, and that's not a good combination.
The High Yield Corporate Bond Fund was down sharply and started to fill in the large open gap created on Thursday. It failed at the 200-day EMA but yesterday made it two closes above the 50-day EMA, and the low here looks more like a "V" bottom than the bear flag we see in the other charts. As always, if this can continue to improve, the stock market may get a boost.
BND (F-fund equivalent ETF) slipped back after Thursday's rally, but the old support line held again. The stimulus should be an boost to the economy so higher yields and lower bond prices are not out of the question, but we are still in the early stages as far as knowing what will happen to the economy from this nationwide / global shut down.
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]
One of my biggest concerns, not for stocks, but for those waiting for a test of the lows is that it sounds like it is a crowded trade. This is what the market does - whether it's being manipulated, controlled by program traders, or just capitulation from retail investors, the market tends to go further than we anticipate that it can.
We saw it on the way down when a 10% correction became a 20% "bear market" (by some definitions), and that quickly turned into a 30% plus breakdown that scared the hell out of investors. It happened quickly, it was intense, and it didn't feel natural having happened within just a few weeks.
Now here we are with some decent news on the coronavirus as far as a possible peak in the cases and talk of an eventual end to the national shutdown. The market has exploded on this news, as well as the action from the Fed. Many of us anticipated a relief rally but not many expected this kind of reversal.
The 30% plus decline was trying to price in the expected carnage yet, other than a couple of weekly jobless claims and one monthly jobs report, all of which were awful, we haven't even seen the carnage yet. Earnings season is just starting and don't forget that the first quarter earnings include the earnings of January, February, and March, and March was really the only month that was fully impacted of the three, so the worst may be yet to come in the second quarter, April through June, and we won't see earnings from that quarter until we're into July.
Yes, there's a light at the end of the tunnel, but the economy has been purposely destroyed in order to slowdown the spread of the virus. But there isn't any reason in the world for stocks to go right back up to the old highs, which were already extremely overvalued based on historical measures when price was compared to earnings. We know what the jobs and earnings numbers are going to be like in the second quarter - worst than the first. And even once we get passed that quarter, will life go on as we knew it before this virus? Not likely.
So, I think either the market is being manipulated (less likely) or this rally is just going too far, too fast, and too may of us were expected a test of the lows, so that was probably the least likely thing the market was going to do - which was to make it easy for us. So this rally is stretching and it almost certainly will come to an abrupt end, but I don't expect the market gods to ring a bell or send us an email when it's time. It will likely come when many have finally given up on the idea of a retest.
I don't read a lot of other people's market commentary for a few reasons, one being that I don't like it to influence my take on the charts and what I see happening, but there are a few folks who I have a lot of respect for and I will read their opinions occasionally when I'm shaking my head at the action. Unfortunately most of those folks who I respect are also shaking their heads, so like I said, the market may be toying with us and making it uncomfortable for those of us who are trying to patiently wait.
I had to write this earlier than usual on Tuesday because I have to be somewhere later and I won't have time to do updated charts. I'll leave yesterday's commentary below in case you missed those charts. The message is the same - the market has just stretched the rubber band a little more.
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
04/14/20
The new week started on the downside after last week's historic weekly gains. The losses were modest and the bulls made a decent comeback in the afternoon, pushing the indices off their morning lows of the day. The Dow lost 329-points and the S&P 500 dropped 1%, while the Nasdaq was up thanks to big gains in Amazon, Netflix and the semiconductors. Small caps and the Transports each lost over 2%.
[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 bulls and bears are doing the classic dance after a bear market rally, which is the bears expect a test of the prior lows, while the bulls are counting on the market reacting positively to the Federal Reserve and the government after having thrown the kitchen sink at the economy, with congress looking to do more.
Since the 2008 financial crisis bear market we've seen time after time attempts to keep the markets up, or at least keep the economy stimulated, by the Fed and government, so I guess it would be silly to expect anything different. It's probably why we haven't seen recession in 12 years, a lot longer than the typical business cycle might indicate. Last year's inverted yield curve suggested that we could see a recession in the coming year or so, and as if on queue, we get a virus that shuts down the economy. How about that inverted yield curve indicator? Go figure.
Volatility should remain elevated making it tough to be comfortable with any position, cash or stocks, because the swings in both direction should continue to be wide. The safe thing to do would be to sit on the sidelines and wait for the smoke to clear, but getting aggressive could be rewarded - eventually.
The big debate now is whether we see a test of the lows, and that goes back to the above paragraph and whether what the Fed and government are doing will be enough to avoid the economic fallout most are expecting. While in a bear market, we should probably expect bearish results, but this was a self-inflicted economic bear market because of the coronavirus, and perhaps it will play out differently than other bear markets?
We've seen a few 90% positive breadth thrusts in the NYSE since the recent low, which suggests a massive buying surge, and that does tend to happen near market bottoms, so perhaps this bear won't be around too long, but a successful test of the lows and filling the open gaps on the charts first would make it a lot cleaner.
Now, let's get through the first quarter earnings season first.
The S&P 500 (C-fund) was down on Monday, but it was more of a positive reversal day with that afternoon rally off the lows. It is still in a bear flag pattern and below the 50-day EMA so the bear market would suggest that it won't end well, but there's no rule that says the bear has to win.
The DWCPF (S-fund) has had a good run off the lows but that is a clear bear flag, in a bear market, so I have to give the advantage to the bears here.
The price of oil tumbled, perhaps surprisingly, after the deal between OPEC and other oil producing countries was finalized. While the supply side agreement was made and should have perhaps been bullish for oil, the industry obviously still has to deal with the dramatic drop in global demand. That's a negative outside reversal day on the chart, so that may be signaling another test of $20 is coming.
The Dow Jones Transportation Index is in a similar situation as the small caps above - it's a bear flag, in a bear market, below the moving averages, and that's not a good combination.
The High Yield Corporate Bond Fund was down sharply and started to fill in the large open gap created on Thursday. It failed at the 200-day EMA but yesterday made it two closes above the 50-day EMA, and the low here looks more like a "V" bottom than the bear flag we see in the other charts. As always, if this can continue to improve, the stock market may get a boost.
BND (F-fund equivalent ETF) slipped back after Thursday's rally, but the old support line held again. The stimulus should be an boost to the economy so higher yields and lower bond prices are not out of the question, but we are still in the early stages as far as knowing what will happen to the economy from this nationwide / global shut down.
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.
