Happy New Year! A late rally took the indices off their lows on Friday to salvage a fairly flat final week of the year on Wall Street. The sea of red on the returns below on the right sum up what kind of year we've had. I don't know if the buying in the final hour had much meaning. It could have been short covering, or possible just positioning before the New Year starts, but the next two days could have a lot of meaning.
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The next two days are a coin flip. The start of a New Year is general volatile and the moves can be big. The historical bias is bullish but in more recent years there has been flip flopping action in the first two days - one day up, one day down, etc., so I don't have a good feel for what to expect.
Last week I talked about the stock market adage that says as goes January, so goes the year for stocks. And as goes the first week in January, so goes January, and so goes the year.
Let's go back to the last non-COVID bear market of 2008. After losing 37% in 2008, the S&P 500 lost an additional 25% or so into the March 2009 low. Ugly! However, the S&P 500 gained 3.2% on the first trading day in January in 2009, and actually moved a little higher in the following two days and peaked on the third trading day in January.
By the end of 2009 the S&P 500 closed the year out with a 27% gain. So that first trading day, or few days, actually did predict a positive year for 2009, but it took two and half months before the lows were hit.
That could be what happens this year as well. Keep an eye on the early action this coming week. It could predict the eventual direction for 2023, but that doesn't mean the next few months will take that same path as volatility will likely continue early in the year.
OK, that was a whole lot of noise and not much fundamental or technical analysis, but like seasonality, ignoring it completely could be a mistake.
The bearishness heading into the new year is palpable, so the question is, is everybody right? That's not usually the case and that's because the stock market has been described as a discounting mechanism and also a leading indicator, meaning everything that we know has already been priced in. So if we're all expecting a recession, perhaps prices reflect that already.
I will get into more analysis after these first couple of days but today I will use my time, and yours, to talk about what happened in 2022 as it relates to our services: the good, the bad, and the ugly.
First off, the major indices had poor years, but to varying degrees.
The more defensive names of the Dow held up best in the stock market. The Nasdaq took a big hit losing a third of its value. The S-fund (DWCPF) didn't do much better. The S&P 500 lost 19.4%, although the C-fund was down 18.1% because of dividends paid that get reflected in the share price.
The EFA, which the I-fund tracks, held up better losing half of what the S-fund did, and even the F-fund (bonds) lost about 13% so there wasn't any safe haven outside of the G-fund which ended the year with about a 3% gain.
Now for some Monday morning quarterbacking of TSP Talk during 2022.
The good news, the TSP Talk Plus service allocations ended the year with a gain of 1%, which of course beat all of the stocks and bond TSP fund returns. I managed to dodge several bullets during the bear market, although coming into December I had a goal to try to beat the G-fund as well, but I came up short with a 0.19% loss during the bearish month as the Santa Claus rally never materialized in the final two weeks.
RevShark's TSP Timing also ended the year just north of positive territory with a gain of 0.38%, or 0.33% depending if I go by my spreadsheet or the AutoTracker. I don't know if it's rounding but my spreadsheet returns seem to be off by a couple of tenths of a percent from the AutoTracker. Either way RevShark easily beat the bear market returns. RevShark generally takes a more calculating defensive approach and that worked out well for him last year.
Intrepid Timer's TSP service on the other hand tends to be more aggressive and that didn't work out for Mike during the bear market. He ended the year down 30.8% and he sent subscribers a mea culpa explaining how inflation and rising interest rates really messed with his system and some late adjustments weren't enough to salvage a come back.
In a letter to subscribers he said that starting this year he will not offer annual subscriptions because he said if the changes he made to his system do not work for him this year, he may have to cancel the service.
He is also lowering his monthly subscription price because of the bad results saying, "I’ll get this back on track, so thank you for bearing with me. I’m fully expecting big things this year with much shorter trades and consistent gains."
I'm rooting for Mike for obvious reasons, but also because he has been with TSP Talk since 2004, started his premium service here in 2011, and he has been completely reliable and dedicated to that service, never missing a report, even when he had been in the hospital having surgery last year. He lives and breathes this stuff and if anyone can fight through this, it's Mike!
That's about it for today. The next couple of days could be wild, could be frustrating with volatile swings, and most importantly they could be telling. As I talked about above, I believe the first few days could tell us how 2023 will end up, but like 2009 it won't be a straight path. January may be good, but that doesn't mean it will be an easy year. We're still in a bear market and selling rallies is generally the approach until something in the charts or fundamentals (like the Federal Reserve) changes, and that hasn't happened yet.
Congratulation to all our AutoTracker winners! There were some impressive returns during the 2022 bear market. Here's a link to the list of winners: https://www.tsptalk.com/mb/autotracker-monthly-contest/40080-2022-final-autotracker-winners.html
Good luck to all in 2023!
The S&P 500 (C-fund) has been consolidating since the decline off the December 13 CPI report / Fed rate hike peak. This looks like a bear flag, and these flags tend to break down, but in 2022 that wasn't always the case. The chart of the small caps shows this even more clearly.
The DWCPF (S-fund) shows those post decline consolidations, but in late 2022 we saw breakouts to the upside after these, and while the rallies were brief, they were fairly significant, that is before they flipped back over a few days later. The most recent flag is more of an "F" flagged (named coined by Oscar of livewithoscar.com) than a bear flag and they actually tend to break to the upside instead of the downside. I don't know which way this one will break, but I have a feeling it will be a big move whichever way it goes.
The EFA / I-fund was the leader of the TSP stock funds in 2022 although it led not with a gain, but by having the smallest loss of the three. Like the other stocks funds, this one has also been consolidating, but unlike the C and S fund charts, this one has held up a lot better because the dollar has remained weak, and it is trading above the 50 and 200 day moving averages. However, it has been having a tough time getting back over that green 20-day EMA. There's a small gap above that could get filled but there's more resistance in that area. There's also a large open gap below that will likely get revisited at some point in the first few months of the new year.
BND / F-fund has pulled back off the December highs and it is trying to find support in that 72 area. If we get a recession in 2023 I would expect this fund to outperform the stock funds, at least for the for half of the year. If instead inflation gets hot again, I'd avoid this F-fund.
Inflation isn't something that is here until it isn't. It can come and go if not addressed aggressively. The 1970's was a nightmare for inflation and you can see how much it fluctuated. This is what the Fed is concerned about and why they are reluctant to stop raising interest rates.
Chart source: longtermtrends.net/m2-money-supply-vs-inflation/
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
To get weekly or daily notifications when we post new commentary, sign up HERE.
Thanks so much 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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The next two days are a coin flip. The start of a New Year is general volatile and the moves can be big. The historical bias is bullish but in more recent years there has been flip flopping action in the first two days - one day up, one day down, etc., so I don't have a good feel for what to expect.
Last week I talked about the stock market adage that says as goes January, so goes the year for stocks. And as goes the first week in January, so goes January, and so goes the year.
Let's go back to the last non-COVID bear market of 2008. After losing 37% in 2008, the S&P 500 lost an additional 25% or so into the March 2009 low. Ugly! However, the S&P 500 gained 3.2% on the first trading day in January in 2009, and actually moved a little higher in the following two days and peaked on the third trading day in January.
By the end of 2009 the S&P 500 closed the year out with a 27% gain. So that first trading day, or few days, actually did predict a positive year for 2009, but it took two and half months before the lows were hit.
That could be what happens this year as well. Keep an eye on the early action this coming week. It could predict the eventual direction for 2023, but that doesn't mean the next few months will take that same path as volatility will likely continue early in the year.
OK, that was a whole lot of noise and not much fundamental or technical analysis, but like seasonality, ignoring it completely could be a mistake.
The bearishness heading into the new year is palpable, so the question is, is everybody right? That's not usually the case and that's because the stock market has been described as a discounting mechanism and also a leading indicator, meaning everything that we know has already been priced in. So if we're all expecting a recession, perhaps prices reflect that already.
I will get into more analysis after these first couple of days but today I will use my time, and yours, to talk about what happened in 2022 as it relates to our services: the good, the bad, and the ugly.
First off, the major indices had poor years, but to varying degrees.
The more defensive names of the Dow held up best in the stock market. The Nasdaq took a big hit losing a third of its value. The S-fund (DWCPF) didn't do much better. The S&P 500 lost 19.4%, although the C-fund was down 18.1% because of dividends paid that get reflected in the share price.
The EFA, which the I-fund tracks, held up better losing half of what the S-fund did, and even the F-fund (bonds) lost about 13% so there wasn't any safe haven outside of the G-fund which ended the year with about a 3% gain.
Now for some Monday morning quarterbacking of TSP Talk during 2022.
The good news, the TSP Talk Plus service allocations ended the year with a gain of 1%, which of course beat all of the stocks and bond TSP fund returns. I managed to dodge several bullets during the bear market, although coming into December I had a goal to try to beat the G-fund as well, but I came up short with a 0.19% loss during the bearish month as the Santa Claus rally never materialized in the final two weeks.
RevShark's TSP Timing also ended the year just north of positive territory with a gain of 0.38%, or 0.33% depending if I go by my spreadsheet or the AutoTracker. I don't know if it's rounding but my spreadsheet returns seem to be off by a couple of tenths of a percent from the AutoTracker. Either way RevShark easily beat the bear market returns. RevShark generally takes a more calculating defensive approach and that worked out well for him last year.
Intrepid Timer's TSP service on the other hand tends to be more aggressive and that didn't work out for Mike during the bear market. He ended the year down 30.8% and he sent subscribers a mea culpa explaining how inflation and rising interest rates really messed with his system and some late adjustments weren't enough to salvage a come back.
In a letter to subscribers he said that starting this year he will not offer annual subscriptions because he said if the changes he made to his system do not work for him this year, he may have to cancel the service.
He is also lowering his monthly subscription price because of the bad results saying, "I’ll get this back on track, so thank you for bearing with me. I’m fully expecting big things this year with much shorter trades and consistent gains."
I'm rooting for Mike for obvious reasons, but also because he has been with TSP Talk since 2004, started his premium service here in 2011, and he has been completely reliable and dedicated to that service, never missing a report, even when he had been in the hospital having surgery last year. He lives and breathes this stuff and if anyone can fight through this, it's Mike!
That's about it for today. The next couple of days could be wild, could be frustrating with volatile swings, and most importantly they could be telling. As I talked about above, I believe the first few days could tell us how 2023 will end up, but like 2009 it won't be a straight path. January may be good, but that doesn't mean it will be an easy year. We're still in a bear market and selling rallies is generally the approach until something in the charts or fundamentals (like the Federal Reserve) changes, and that hasn't happened yet.
Congratulation to all our AutoTracker winners! There were some impressive returns during the 2022 bear market. Here's a link to the list of winners: https://www.tsptalk.com/mb/autotracker-monthly-contest/40080-2022-final-autotracker-winners.html
Good luck to all in 2023!
The S&P 500 (C-fund) has been consolidating since the decline off the December 13 CPI report / Fed rate hike peak. This looks like a bear flag, and these flags tend to break down, but in 2022 that wasn't always the case. The chart of the small caps shows this even more clearly.
The DWCPF (S-fund) shows those post decline consolidations, but in late 2022 we saw breakouts to the upside after these, and while the rallies were brief, they were fairly significant, that is before they flipped back over a few days later. The most recent flag is more of an "F" flagged (named coined by Oscar of livewithoscar.com) than a bear flag and they actually tend to break to the upside instead of the downside. I don't know which way this one will break, but I have a feeling it will be a big move whichever way it goes.
The EFA / I-fund was the leader of the TSP stock funds in 2022 although it led not with a gain, but by having the smallest loss of the three. Like the other stocks funds, this one has also been consolidating, but unlike the C and S fund charts, this one has held up a lot better because the dollar has remained weak, and it is trading above the 50 and 200 day moving averages. However, it has been having a tough time getting back over that green 20-day EMA. There's a small gap above that could get filled but there's more resistance in that area. There's also a large open gap below that will likely get revisited at some point in the first few months of the new year.
BND / F-fund has pulled back off the December highs and it is trying to find support in that 72 area. If we get a recession in 2023 I would expect this fund to outperform the stock funds, at least for the for half of the year. If instead inflation gets hot again, I'd avoid this F-fund.
Inflation isn't something that is here until it isn't. It can come and go if not addressed aggressively. The 1970's was a nightmare for inflation and you can see how much it fluctuated. This is what the Fed is concerned about and why they are reluctant to stop raising interest rates.
Chart source: longtermtrends.net/m2-money-supply-vs-inflation/
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
To get weekly or daily notifications when we post new commentary, sign up HERE.
Thanks so much 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.
