The traditional Santa Claus rally week got off to a rough start with another emotional Monday morning gap after investors panicked over a new strain of the coronavirus being spread in Europe. I don't know much about that virus, but I do see that investors were buying the early deep losses, and while we didn't see much green by the close, most of the indices closed well off the morning's carnage lows, and the gaps were filled. The Dow was one of the green indices gaining 37-points, as Nike and the financials did rally big, as we talked about in yesterday's commentary. The S-fund also came back to close positive.
[TABLE="align: center"]
[TR]
[TD="align: center"] Daily TSP Funds Return
[TABLE="align: center"]
[TR]
[TD="align: right"][/TD]
[/TR]
[/TABLE]
[/TD]
[TD]
[/TD]
[TD="width: 362, align: center"]
[/TD]
[/TR]
[/TABLE]
2020 continues to act like 2020, and the good news is, there's only seven trading days left in this crazy year. I was hoping I'd be here everyday this week trying to think of something interesting to talk about because the market normally inches up quietly in these final days of the year with generally light volatility, but instead we got another curveball. It may turn out to be a one day event - that remains to be seen, but now it looks like we can't fall asleep during this year's Santa Claus rally.
For the most part we did see a positive reversal day in the index charts, and that's a good thing, but whenever we do get a jolt like that there is always the possibility of a test of yesterday's low. Like open gaps, there's a psychological reason why that is the case, whether stocks remain healthy or not, so we have to be on the lookout for that. Perhaps it won't happen until January, which would make more sense, but again this is 2020 and we probably shouldn't rule out the unexpected. By the way, trading volume was on the light side, especially for a day like yesterday so the big money didn't seem to be dumping stocks.
I don't want to get into too many scenarios. We do know we are in the strongest seasonal period of the year, but nothing is 100%. This is an old chart but the 62 years of data tells us that the S&P 500 is up in December just over 70% of the time, so that means it has been negative nearly 30% of the time. It's average gain is 1.7%, which is the best month of the year, and after yesterday's loss it is already up 2.0% for the month. So even if we slipped a bit in these final two weeks it would be inline the historical averages.
Chart provided courtesy of www.sentimentrader.com
You can also see that January has a very strong track record as well, and the first week in January (not shown) has a bullish bias, but when it's a bad year, it can be very bad.
I'm going to proceed as if yesterday was just a day with some modest losses and forget that first hour or two of trading. But if that happens again this week, we may have to change our tune. As of this writing the House has not yet voted on the Senate COVID relief bill.
The TSP is obviously closed on Friday for Christmas but so far I haven't seen anything about Thursday. The market is open for a half day of trading on Thursday, but it is now a government holiday. Since they haven't said anything yet, I'm assuming they will be processing transactions.
The S&P 500 (C-fund) plummeted out of the gate on Monday morning. We talk often about Monday morning gap opens and that they can tend to get filled quickly, which this one did, but the index still gave up a modest 0.39% on the day. Volume was just slightly higher than that of the middle of last week, but considering what was going on, that was quite surprisingly low. One of the lower parallel support lines held, as did the 20-day EMA.
The DWCPF Index / S-fund continues to impress as it managed to close with a gain of 0.15% after all of the smoke cleared yesterday. The trading channel stayed intact, so the bears gave the bulls the ball again, after another failed opportunity for them.
EFA / I-fund took the brunt of yesterday's sell off because of the weakness in the European markets due to that new virus strain. That sent the dollar rallying, and we know what can happen to the I-fund when the dollar rallies. Despite the positive reversal, the chart broke down and the old support may try to now hold as resistance, so this looks a little serious. There are now open gaps above and below and it will be very important for the bulls to get that overhead gap filled and get back into that channel, otherwise it could be trouble here.
The price of oil fell sharply and that of course is because of the shutdown scares across Europe. It did close well off the lows and bounced off the 20-day EMA so it is still holding on to the bullish case.
One thing to keep an eye on is the VIX, which traded wildly yesterday. It is usually very quiet this time of year, so getting over 31 at one point yesterday was an eye opener, even though it closed closer to 24.
BND (Bonds / F-fund) was surprisingly flat so it was unimpressed with the trouble in Europe, but if that is a big bull flag forming, it could be an indication that the bond market is getting ready for another plunge in yields, and that would likely be caused if the U.S. economy gets negatively impacted by this U.K. story - or just that the U.S. recovery could run into hiccups.
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="width: 362, align: center"]
[/TR]
[/TABLE]
2020 continues to act like 2020, and the good news is, there's only seven trading days left in this crazy year. I was hoping I'd be here everyday this week trying to think of something interesting to talk about because the market normally inches up quietly in these final days of the year with generally light volatility, but instead we got another curveball. It may turn out to be a one day event - that remains to be seen, but now it looks like we can't fall asleep during this year's Santa Claus rally.
For the most part we did see a positive reversal day in the index charts, and that's a good thing, but whenever we do get a jolt like that there is always the possibility of a test of yesterday's low. Like open gaps, there's a psychological reason why that is the case, whether stocks remain healthy or not, so we have to be on the lookout for that. Perhaps it won't happen until January, which would make more sense, but again this is 2020 and we probably shouldn't rule out the unexpected. By the way, trading volume was on the light side, especially for a day like yesterday so the big money didn't seem to be dumping stocks.
I don't want to get into too many scenarios. We do know we are in the strongest seasonal period of the year, but nothing is 100%. This is an old chart but the 62 years of data tells us that the S&P 500 is up in December just over 70% of the time, so that means it has been negative nearly 30% of the time. It's average gain is 1.7%, which is the best month of the year, and after yesterday's loss it is already up 2.0% for the month. So even if we slipped a bit in these final two weeks it would be inline the historical averages.
Chart provided courtesy of www.sentimentrader.com
You can also see that January has a very strong track record as well, and the first week in January (not shown) has a bullish bias, but when it's a bad year, it can be very bad.
I'm going to proceed as if yesterday was just a day with some modest losses and forget that first hour or two of trading. But if that happens again this week, we may have to change our tune. As of this writing the House has not yet voted on the Senate COVID relief bill.
The TSP is obviously closed on Friday for Christmas but so far I haven't seen anything about Thursday. The market is open for a half day of trading on Thursday, but it is now a government holiday. Since they haven't said anything yet, I'm assuming they will be processing transactions.
The S&P 500 (C-fund) plummeted out of the gate on Monday morning. We talk often about Monday morning gap opens and that they can tend to get filled quickly, which this one did, but the index still gave up a modest 0.39% on the day. Volume was just slightly higher than that of the middle of last week, but considering what was going on, that was quite surprisingly low. One of the lower parallel support lines held, as did the 20-day EMA.
The DWCPF Index / S-fund continues to impress as it managed to close with a gain of 0.15% after all of the smoke cleared yesterday. The trading channel stayed intact, so the bears gave the bulls the ball again, after another failed opportunity for them.
EFA / I-fund took the brunt of yesterday's sell off because of the weakness in the European markets due to that new virus strain. That sent the dollar rallying, and we know what can happen to the I-fund when the dollar rallies. Despite the positive reversal, the chart broke down and the old support may try to now hold as resistance, so this looks a little serious. There are now open gaps above and below and it will be very important for the bulls to get that overhead gap filled and get back into that channel, otherwise it could be trouble here.
The price of oil fell sharply and that of course is because of the shutdown scares across Europe. It did close well off the lows and bounced off the 20-day EMA so it is still holding on to the bullish case.
One thing to keep an eye on is the VIX, which traded wildly yesterday. It is usually very quiet this time of year, so getting over 31 at one point yesterday was an eye opener, even though it closed closer to 24.
BND (Bonds / F-fund) was surprisingly flat so it was unimpressed with the trouble in Europe, but if that is a big bull flag forming, it could be an indication that the bond market is getting ready for another plunge in yields, and that would likely be caused if the U.S. economy gets negatively impacted by this U.K. story - or just that the U.S. recovery could run into hiccups.
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.