It was another very volatile day for stocks with morning gains turning into a chop above and below the flat line, followed by a dive into the close. The selling was blamed on the additional tariffs on China, but it also seemed to closely follow the story of Nvidia as it was up after reporting earnings on Wednesday evening, opening slightly higher, but slid down most of the day yesterday and closing down 8.5%. Yields were up so the F-fund took its first loss of the week, albeit small.
No matter how bearish we thought the end of February was going to be based on the seasonality calendar, I wasn't bearish enough. I said it many times, seasonality is not normally a primary indicator, but there are certain weeks of the year that it should be taken more seriously. I was prepared for it, but again, not enough.
The good news? March tends to be much better and while we shouldn't take it as a specific reason to buy, the seasonality wind in the face of the stock market will stop blowing next week. Not that stocks will go up, but the calendar is no longer against it.
Chart provided courtesy of www.sentimentrader.com
We do see a lot of red in those average return bars above, but the averages in March were skewed by the dramatic COVID crash losses in 2020. The same goes for some of those green bars later in the month when stocks were recovering later in the month in 2020.
The recent bearish action seems a little overheated, and a lot of that has to do with the reaction to the sweeping changes that Trump is making. But from low to high the S&P 500 is down "just" 4.7%. That's nothing to sneeze at, and who knows how low it might actually go, but since 1945 the S&P 500 has declined 5% or more nearly 130 times. On average, that's a little less than twice each year.
This data only goes through mid-2021, and since I am just trying to make a point, I won't bother to update the data, but how many of those ~130 5% declines went further?
Source: https://winthropwealth.com/commentary/how-often-does-the-stock-market-decline/
The 2022 bear market, which is not included in this list, saw a drop of 27% so add one to the top three numbers on that list. Plus we had a near 10% drop last August, which is also not part of that data.
So they happen. They hurt. But they are not the end of the world.
We also have the tendency for a new president hangover and, based on this chart which goes back to 1900, the post inauguration doldrums seems last into the spring.
Source: https://info.ndr.com/ndr-signals/cycles-gain-momentum
Technically this is a second term for Trump but split terms has only happened once before, so there aren't a lot of charts out there going back to Grover Cleveland.
As far as the damage done so far, this 4.7% decline almost completely filled the early January gap, and depending on how we define a gap fill, may have already done so. The blue box represents the gap from the Jan 13 high to the Jan 14 low. The other school of thought is the gap isn't filled until it gets back to that Jan 13 closing price, which is the bottom of the red gap. That one is still slightly open.
This one year chart shows that the S&P 500 is starting to slip below the longer-term rising support line. The last time that happened the index flirted with that 200-day EMA before reboundning.
These breakdowns are concerning because it means investors are willing to sell below support. But they actually often push declines below support key to try to push out weaker holders, and that's when you can see a capitulation (I give up) low. They can be very unnerving, but if you happen to have cash on hand when they occur, it can be rewarding. I wouldn't say we've seen that type of action yet, but many of the investor sentiment type of indicators are getting very extreme on the overly bearish side.
There will likely be a big snap back rally at some point in the not too distant future, but it may depend where that rebound originates to better evaluate if it is a rally that will trigger a bottom, or one that needs to be sold.
One more thing before heading into the weekend: The 10-year / 3-month yield curve, as well as the 10-year / 1-month curve, both inverted this week, which is a leading sign of a potential recession. That happens when the shorter term bond pay more than longer term.
It's not an instant indicator as it could take many months before we see any evidence of a recession, and while we never did get a recession after the 10-year / 2-year yield curve first inverted in 2022, we did eventually enter a bear market that year.
DWCPF (S-fund) landed with a thud, right on its 200-day EMA on Thursday. That could be support, but after yesterday's close, it doesn't seem likely unless some kind of news comes out. There is more support near 2170, which is the bottom of that descending trading channel. A lower high and lower low sounds like a downtrend - but if we zoomed out a couple a months you would see that this could be a massive bull flag.
ACWX (the I-fund tracking index) was hit hard and it too may be forming a bull flag, although much smaller. I still like the 55 area as good place for a pullback to stall, although there is an open gap down by 53.75.
BND (F-fund) was finally down after a six day winning streak. It's back below the rising resistance line of the rising channel. The question is whether the bond market is more concerned with inflation or a weakening economy. The higher this goes, the more they are leaning toward economic weakness and perhaps they are nudging the Fed toward a rate cut sooner rather than later.
Thanks so much for reading! Have a great weekend!
Tom Crowley
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
Questions, comments, or issues with today's commentary? We can discuss it in the Forum.
Daily Market Commentary Archives
For more info our other premium services, please go here... www.tsptalk.com/premiums.php
To get weekly or daily notifications when we post new commentary, sign up HERE.
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 may use additional methods and strategies to determine fund positions.
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No matter how bearish we thought the end of February was going to be based on the seasonality calendar, I wasn't bearish enough. I said it many times, seasonality is not normally a primary indicator, but there are certain weeks of the year that it should be taken more seriously. I was prepared for it, but again, not enough.
The good news? March tends to be much better and while we shouldn't take it as a specific reason to buy, the seasonality wind in the face of the stock market will stop blowing next week. Not that stocks will go up, but the calendar is no longer against it.
Chart provided courtesy of www.sentimentrader.com
We do see a lot of red in those average return bars above, but the averages in March were skewed by the dramatic COVID crash losses in 2020. The same goes for some of those green bars later in the month when stocks were recovering later in the month in 2020.
The recent bearish action seems a little overheated, and a lot of that has to do with the reaction to the sweeping changes that Trump is making. But from low to high the S&P 500 is down "just" 4.7%. That's nothing to sneeze at, and who knows how low it might actually go, but since 1945 the S&P 500 has declined 5% or more nearly 130 times. On average, that's a little less than twice each year.
This data only goes through mid-2021, and since I am just trying to make a point, I won't bother to update the data, but how many of those ~130 5% declines went further?
Source: https://winthropwealth.com/commentary/how-often-does-the-stock-market-decline/
The 2022 bear market, which is not included in this list, saw a drop of 27% so add one to the top three numbers on that list. Plus we had a near 10% drop last August, which is also not part of that data.
So they happen. They hurt. But they are not the end of the world.
We also have the tendency for a new president hangover and, based on this chart which goes back to 1900, the post inauguration doldrums seems last into the spring.
Source: https://info.ndr.com/ndr-signals/cycles-gain-momentum
Technically this is a second term for Trump but split terms has only happened once before, so there aren't a lot of charts out there going back to Grover Cleveland.
As far as the damage done so far, this 4.7% decline almost completely filled the early January gap, and depending on how we define a gap fill, may have already done so. The blue box represents the gap from the Jan 13 high to the Jan 14 low. The other school of thought is the gap isn't filled until it gets back to that Jan 13 closing price, which is the bottom of the red gap. That one is still slightly open.
This one year chart shows that the S&P 500 is starting to slip below the longer-term rising support line. The last time that happened the index flirted with that 200-day EMA before reboundning.
These breakdowns are concerning because it means investors are willing to sell below support. But they actually often push declines below support key to try to push out weaker holders, and that's when you can see a capitulation (I give up) low. They can be very unnerving, but if you happen to have cash on hand when they occur, it can be rewarding. I wouldn't say we've seen that type of action yet, but many of the investor sentiment type of indicators are getting very extreme on the overly bearish side.
There will likely be a big snap back rally at some point in the not too distant future, but it may depend where that rebound originates to better evaluate if it is a rally that will trigger a bottom, or one that needs to be sold.
One more thing before heading into the weekend: The 10-year / 3-month yield curve, as well as the 10-year / 1-month curve, both inverted this week, which is a leading sign of a potential recession. That happens when the shorter term bond pay more than longer term.
It's not an instant indicator as it could take many months before we see any evidence of a recession, and while we never did get a recession after the 10-year / 2-year yield curve first inverted in 2022, we did eventually enter a bear market that year.
DWCPF (S-fund) landed with a thud, right on its 200-day EMA on Thursday. That could be support, but after yesterday's close, it doesn't seem likely unless some kind of news comes out. There is more support near 2170, which is the bottom of that descending trading channel. A lower high and lower low sounds like a downtrend - but if we zoomed out a couple a months you would see that this could be a massive bull flag.
ACWX (the I-fund tracking index) was hit hard and it too may be forming a bull flag, although much smaller. I still like the 55 area as good place for a pullback to stall, although there is an open gap down by 53.75.
BND (F-fund) was finally down after a six day winning streak. It's back below the rising resistance line of the rising channel. The question is whether the bond market is more concerned with inflation or a weakening economy. The higher this goes, the more they are leaning toward economic weakness and perhaps they are nudging the Fed toward a rate cut sooner rather than later.
Thanks so much for reading! Have a great weekend!
Tom Crowley
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
Questions, comments, or issues with today's commentary? We can discuss it in the Forum.
Daily Market Commentary Archives
For more info our other premium services, please go here... www.tsptalk.com/premiums.php
To get weekly or daily notifications when we post new commentary, sign up HERE.
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 may use additional methods and strategies to determine fund positions.
