Stocks were down for a second straight day on Friday, but the bulls fought back from some steeper early losses to close well off the lows. The S&P 500 had been down over 100-points in early trading, and the Dow was down more than 600, before closing down 28 and 159 respectively. The Nasdaq lagged as the large tech stocks that led on the upside, are now being sold more aggressively.
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The market does tend to frustrate the most people it can at any given time. The relentless rally had many people on the sidelines waiting for a pullback, that never came. As more relented and bought into the soaring indices, things reversed in a hurry on Thursday and it seemed like the losses were coming all at once, frustrating the bulls - particularly the late comers.
On Friday the selling continued but by then some of the short-term indicators started to get quite oversold and we saw an afternoon snap-back rally. The moves were really big in both stocks and bonds, so it's hard to imagine that it was all just pre-holiday finagling. There seemed to be something behind it with volumes popping more than you'd expect during a holiday.
The futures opened lower on Sunday evening, then reversed and started to rally back on Monday morning during the holiday trading, so the volatility remained high in the overnight sessions as the VIX suggests we could see, so what was happening overnight may or may not hold into Tuesday's opening bell.
The advance / decline numbers weren't too bad by Friday's close considering the losses, and we'd actually seen worse up / down share volume ratios on up days recently.
About 30 minutes before our IFT deadline on Friday, stocks were near their lows of the day, the S&P 500 was down about 100-points and the Nasdaq was off about 300, and anyone who was trying to figure out where they wanted to allocate their accounts for after the holiday had to make a decision based on the information that you had at the time. That left 4 hours for the market to move about wildly and give you time to second guess your decision. Of course the indices all popped into, or near positive territory, in afternoon trading, then sank slightly into the close making for a completely different picture than what it was at 11:30 AM ET when you had to make your decision.
The same thing happened on Thursday except, instead of deep losses turning up and creating a positive reversal look like we saw on Friday, we saw sharp losses near the deadline turn into an extremely deep losses by the close, so that delay certainly makes it tough for us in a fast moving market, normally when good trading opportunities are presenting themselves. I'm sure that's one of the reasons that the TSP has that deadline - not only for administrative purposes, but to keep us from trying to time the market -- something many of us enjoy doing.
I'm not looking to start that discussion over again - more IFT's and a later deadline, because no one is listening. But here's the thing; if you recall last Wednesday's commentary where John Hussman of Hussman funds, a valuation warrior, showed why history suggests that the S&P 500's average annual return over the next 12 years could be -1%, yes a loss -- over 12 years.
If that's the case, how else can we make money under those circumstances if we don't try to time the market? The only way to beat the market indices is to be out of stocks when they are falling. Other than that, if Hussman is right, the buy and holder may be in for a very dry 12 years. How many retired folks can survive on a 12 year loss in stocks? How can someone effectively save for requirement when stocks are down for 12 years, bond yields are under 1%, and the G-fund pays less than 2% a year?
The answer is you have to be proactive with your account. But the TSP doesn't want us to do it, so they've set up roadblocks for us to discourage us. As you can see in our TSP Talk AutoTracker, it can be done with a couple, or several, some well timed transactions. It's not easy with our limitations, but the alternative is most likely underperforming inflation over the next decade plus, using a buy and hold strategy.
So, stocks ended the pre-holiday week with a pop in volatility and losses on higher than expected trading volume, all of which are out of the ordinary and may have been the holiday reversal we often talk about - and was coined by a friend of mine, Oscar Carboni (aka, Live with Oscar.) That is that markets often break from the current trend as they lead up to a holiday, and then the original trend resumes after the holiday. The question is, if volume and volatility are above average like we saw the end the week, is it a typical holiday reversal, or was the higher volume a sign that this decline was more meaningful then a tendency?
The S&P 500 (C-fund) tanked in the final two days of the week last week, falling sharply from all time highs, and all the way down below the 20-day EMA, down close to the 50-day EMA. That's quite a drop, and the question is whether that was all the market needed to refresh for another shot at new highs, or if last week's action was a change in tone for the market. The drop coming two days before a long holiday weekend is suspicious because we've talked about pre-holiday reversals often here, and if that's all it was, stocks could just rally back this week. Although that was a severe drop and felt worse than a typical holiday reversal situation.
The Weekly chart of the S&P 500 shows that we did fill that open gap from the prior week. Open gaps on a weekly chart are quite rare and we figured it would be filled quickly, but was that it? Was that all the market was trying to accomplish - fill and run?
The Monthly chart of the S&P 500 is showing that it is up against some long term resistance, and possibly due for some consolidation at the least, and a correction to the 50-month EMA is always a possibility, but that resistance is rising and I suppose it's possible that it could float near that rising resistance line for a while like it did in 2013 - 2014.
The DWCPF (S-fund) fell all the way down through the 50-day EMA before rebounding strongly on Friday. That 1550 area could be resistance, but the futures are indicating that it may open higher - although that could change before the opening bell obviously. It's that dashed broken support line near 1600 that may pose a problem - if it can get back up there any time soon.
The EFA (I-fund) reversed higher on Friday in a very clean spot - right where the 50-day EMA is touching the rising support line. It had filled that large open gap on Thursday, fell below it early on Friday, but managed to close in that gap again by Friday's close.
The Dollar seems to have had its own pre-holiday reversal, coming from its recent lows to the top of that flag-like formation. If it was a pre-holiday reversal, the downside should resume here on Tuesday.
The VIX made a higher high in early Friday trading, hitting 38 before reversing back down and closing all the way down near 31. It's still elevated and that means investors think there may be more volatility ahead. The question is whether this is a new rising trend, or if it has peaked already.
BND (F-fund) may have had its own holiday reversal because on Thursday morning, it looked like bonds were going to bounce right back toward the old highs, but late Thursday and into Friday they gave back much of their recent rebound. If it was a holiday reversal, perhaps they will pop right back up again this week? Like I said above though, the moves were really big in both stocks and bonds, and it's hard to imagine that it was all holiday finagling.
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]
The market does tend to frustrate the most people it can at any given time. The relentless rally had many people on the sidelines waiting for a pullback, that never came. As more relented and bought into the soaring indices, things reversed in a hurry on Thursday and it seemed like the losses were coming all at once, frustrating the bulls - particularly the late comers.
On Friday the selling continued but by then some of the short-term indicators started to get quite oversold and we saw an afternoon snap-back rally. The moves were really big in both stocks and bonds, so it's hard to imagine that it was all just pre-holiday finagling. There seemed to be something behind it with volumes popping more than you'd expect during a holiday.
The futures opened lower on Sunday evening, then reversed and started to rally back on Monday morning during the holiday trading, so the volatility remained high in the overnight sessions as the VIX suggests we could see, so what was happening overnight may or may not hold into Tuesday's opening bell.
The advance / decline numbers weren't too bad by Friday's close considering the losses, and we'd actually seen worse up / down share volume ratios on up days recently.
About 30 minutes before our IFT deadline on Friday, stocks were near their lows of the day, the S&P 500 was down about 100-points and the Nasdaq was off about 300, and anyone who was trying to figure out where they wanted to allocate their accounts for after the holiday had to make a decision based on the information that you had at the time. That left 4 hours for the market to move about wildly and give you time to second guess your decision. Of course the indices all popped into, or near positive territory, in afternoon trading, then sank slightly into the close making for a completely different picture than what it was at 11:30 AM ET when you had to make your decision.
The same thing happened on Thursday except, instead of deep losses turning up and creating a positive reversal look like we saw on Friday, we saw sharp losses near the deadline turn into an extremely deep losses by the close, so that delay certainly makes it tough for us in a fast moving market, normally when good trading opportunities are presenting themselves. I'm sure that's one of the reasons that the TSP has that deadline - not only for administrative purposes, but to keep us from trying to time the market -- something many of us enjoy doing.
I'm not looking to start that discussion over again - more IFT's and a later deadline, because no one is listening. But here's the thing; if you recall last Wednesday's commentary where John Hussman of Hussman funds, a valuation warrior, showed why history suggests that the S&P 500's average annual return over the next 12 years could be -1%, yes a loss -- over 12 years.
If that's the case, how else can we make money under those circumstances if we don't try to time the market? The only way to beat the market indices is to be out of stocks when they are falling. Other than that, if Hussman is right, the buy and holder may be in for a very dry 12 years. How many retired folks can survive on a 12 year loss in stocks? How can someone effectively save for requirement when stocks are down for 12 years, bond yields are under 1%, and the G-fund pays less than 2% a year?
The answer is you have to be proactive with your account. But the TSP doesn't want us to do it, so they've set up roadblocks for us to discourage us. As you can see in our TSP Talk AutoTracker, it can be done with a couple, or several, some well timed transactions. It's not easy with our limitations, but the alternative is most likely underperforming inflation over the next decade plus, using a buy and hold strategy.
So, stocks ended the pre-holiday week with a pop in volatility and losses on higher than expected trading volume, all of which are out of the ordinary and may have been the holiday reversal we often talk about - and was coined by a friend of mine, Oscar Carboni (aka, Live with Oscar.) That is that markets often break from the current trend as they lead up to a holiday, and then the original trend resumes after the holiday. The question is, if volume and volatility are above average like we saw the end the week, is it a typical holiday reversal, or was the higher volume a sign that this decline was more meaningful then a tendency?
The S&P 500 (C-fund) tanked in the final two days of the week last week, falling sharply from all time highs, and all the way down below the 20-day EMA, down close to the 50-day EMA. That's quite a drop, and the question is whether that was all the market needed to refresh for another shot at new highs, or if last week's action was a change in tone for the market. The drop coming two days before a long holiday weekend is suspicious because we've talked about pre-holiday reversals often here, and if that's all it was, stocks could just rally back this week. Although that was a severe drop and felt worse than a typical holiday reversal situation.
The Weekly chart of the S&P 500 shows that we did fill that open gap from the prior week. Open gaps on a weekly chart are quite rare and we figured it would be filled quickly, but was that it? Was that all the market was trying to accomplish - fill and run?
The Monthly chart of the S&P 500 is showing that it is up against some long term resistance, and possibly due for some consolidation at the least, and a correction to the 50-month EMA is always a possibility, but that resistance is rising and I suppose it's possible that it could float near that rising resistance line for a while like it did in 2013 - 2014.
The DWCPF (S-fund) fell all the way down through the 50-day EMA before rebounding strongly on Friday. That 1550 area could be resistance, but the futures are indicating that it may open higher - although that could change before the opening bell obviously. It's that dashed broken support line near 1600 that may pose a problem - if it can get back up there any time soon.
The EFA (I-fund) reversed higher on Friday in a very clean spot - right where the 50-day EMA is touching the rising support line. It had filled that large open gap on Thursday, fell below it early on Friday, but managed to close in that gap again by Friday's close.
The Dollar seems to have had its own pre-holiday reversal, coming from its recent lows to the top of that flag-like formation. If it was a pre-holiday reversal, the downside should resume here on Tuesday.
The VIX made a higher high in early Friday trading, hitting 38 before reversing back down and closing all the way down near 31. It's still elevated and that means investors think there may be more volatility ahead. The question is whether this is a new rising trend, or if it has peaked already.
BND (F-fund) may have had its own holiday reversal because on Thursday morning, it looked like bonds were going to bounce right back toward the old highs, but late Thursday and into Friday they gave back much of their recent rebound. If it was a holiday reversal, perhaps they will pop right back up again this week? Like I said above though, the moves were really big in both stocks and bonds, and it's hard to imagine that it was all holiday finagling.
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.
