Stocks tried to bounce back on Thursday as we saw a large gap up opening, but those rarely hold after a day like we saw on Wednesday. It's the proverbial dead cat bounce, which insinuates that the larger the drop, the less likely the market is going to dust itself off and start running quickly again. There are exceptions and history may tell us that Wednesday's high volatility and lopsided negative breadth may be an indication that we could get a quick reversal higher. However, we may start Friday with a reaction to a potential government shut-down, so the bulls have more obstacles to deal with.
The question is, was Wednesday's mini-crash the exclamation on the recent broader market pullback, or was it confirming the end of the rally for 2024, and into 2025?
Yesterday was the 14th day in a row with negative breadth in the market - more stocks down than up. Although most of the losses came in one day for the S&P 500, we've seen some of the broader indices pulling back for a couple of weeks. Also, Wednesday was a 90% down day, meaning 9 out of 10 stocks were down on the day. That is capitulatory numbers right there.
Another indication that the losses may be recovered came from something Tom Lee said (thanks exnavyew!) about the action in the VIX on Wednesday. That's the Volatility Index for those who may not know. It was up 74% on Wednesday - obviously an unusually large move.
Tom Lee said that in the 35 year history of the VIX, it has only moved up 60% or more in one day 4 times before - yesterday being the 5th time. After 3 of those prior times the stock market recovered its losses within a week! The other time it took a month.
This chart only shows 3 of the prior instances with Wednesday being the 4th, so I'm not sure when that other 60% move in the VIX happened. But notice one was just this past August when we had that odd sell off to start the month, and stocks did go straight up after that.
It's probably not the best comparison but looking at a couple of historical one day drops, the 1987 and post 9/11 crashes, there are some similarities, although the magnitude of the losses was much higher in those prior two.
In 1987 the Dow was drifting lower for a while and then it collapsed with one of the worst two-day declines in history. After that, the Dow never touched that bottom low again.
In 2001, it was similar in that stocks were trending lower, but nothing terrible, when of course 9/11 shocked the world and financial markets crashed. The market fell for four more days but that was a low and the market rallied for 6 months afterward. We did see lower lows much later, but I'm just showing how these types of lopsided losses with dramatic emotion and volatility, do tend to set up buying opportunities.
It was "only' a 3% loss in the S&P 500 on Wednesday compared to those other historic massive declines, but I have a feeling we will be looking back at this week's odd overreaction to the Fed for a while.
Also, notice where the 200-day average is on those charts. The current market is still well above its average suggesting the recent decline was corrective action, not bear market action, but I suppose that could change if the indices can't find support soon.
The lame attempt at a bounce yesterday looked awful, but it is typical as the market shakes out those who are still on the fence. The more I hear, "no Santa Claus rally this year", the more I like the chances of getting one, although the set up is there if the bears want to do more damage.
If you're looking for stocks that held up well during this mess, Nvidia is actually up over the last two days. If you're looking for extremes, healthcare and energy stocks have been decimated this month. Full disclosure, I did buy Nvidia recently and I own an Energy ETF which is getting clobbered. A healthcare ETF may be my next pick.
A government shutdown brings in another level of uncertainty and that could keep the bears growling.
Admin Note: Sign up for (or sign into) the AutoTracker before the end of the year to make sure you get in before the start of the new year when we starts tracking the 2025 returns.
The S&P 500 (C-fund) was down slightly but the news was the early 60-point gain vanishing, which is not unusual the day after a major sell off. They could try to fill that post-election day gap or it can try to hold again in the current area where the October peak and the November lows were.
DWCPF (S-fund) is in a similar situation although this chart is already filling in that open gap, but trying to hold at other rising support.
ACWX (the I-fund tracking index) was up 0.04% yesterday, the I-fund was given a 2.07% loss. It hung around yesterday but it is lingering below some major support.
You can see the updated I-fund and other TSP share prices and returns, usually posted daily by 8:30 PM ET here: https://www.tsptalk.com/tsp_share_prices.php
BND (bonds / F-fund) has also fallen below its 200-day EMA as the new lower low keeps the downtrend in bonds alive. Just above the 71.50 area could be a good place for a bounce to start, although there is another open gap down by 71.
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.
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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 Fed's comments on Wednesday was a pivot from their prior outlook, and Fed pivots can clearly change the direction of the market, as we witnessed on Wednesday. But today we get the PCE Prices Report, and I have speculated that the Fed may have already seen this data, but if not and the data puts a cooler spin on inflation, a case can be made that this week's losses may be recovered quickly. Of course it could go the other way as well where the data confirms the Fed's concern about inflation.The question is, was Wednesday's mini-crash the exclamation on the recent broader market pullback, or was it confirming the end of the rally for 2024, and into 2025?
Yesterday was the 14th day in a row with negative breadth in the market - more stocks down than up. Although most of the losses came in one day for the S&P 500, we've seen some of the broader indices pulling back for a couple of weeks. Also, Wednesday was a 90% down day, meaning 9 out of 10 stocks were down on the day. That is capitulatory numbers right there.
Another indication that the losses may be recovered came from something Tom Lee said (thanks exnavyew!) about the action in the VIX on Wednesday. That's the Volatility Index for those who may not know. It was up 74% on Wednesday - obviously an unusually large move.
Tom Lee said that in the 35 year history of the VIX, it has only moved up 60% or more in one day 4 times before - yesterday being the 5th time. After 3 of those prior times the stock market recovered its losses within a week! The other time it took a month.
This chart only shows 3 of the prior instances with Wednesday being the 4th, so I'm not sure when that other 60% move in the VIX happened. But notice one was just this past August when we had that odd sell off to start the month, and stocks did go straight up after that.
It's probably not the best comparison but looking at a couple of historical one day drops, the 1987 and post 9/11 crashes, there are some similarities, although the magnitude of the losses was much higher in those prior two.
In 1987 the Dow was drifting lower for a while and then it collapsed with one of the worst two-day declines in history. After that, the Dow never touched that bottom low again.
In 2001, it was similar in that stocks were trending lower, but nothing terrible, when of course 9/11 shocked the world and financial markets crashed. The market fell for four more days but that was a low and the market rallied for 6 months afterward. We did see lower lows much later, but I'm just showing how these types of lopsided losses with dramatic emotion and volatility, do tend to set up buying opportunities.
It was "only' a 3% loss in the S&P 500 on Wednesday compared to those other historic massive declines, but I have a feeling we will be looking back at this week's odd overreaction to the Fed for a while.
Also, notice where the 200-day average is on those charts. The current market is still well above its average suggesting the recent decline was corrective action, not bear market action, but I suppose that could change if the indices can't find support soon.
The lame attempt at a bounce yesterday looked awful, but it is typical as the market shakes out those who are still on the fence. The more I hear, "no Santa Claus rally this year", the more I like the chances of getting one, although the set up is there if the bears want to do more damage.
If you're looking for stocks that held up well during this mess, Nvidia is actually up over the last two days. If you're looking for extremes, healthcare and energy stocks have been decimated this month. Full disclosure, I did buy Nvidia recently and I own an Energy ETF which is getting clobbered. A healthcare ETF may be my next pick.
A government shutdown brings in another level of uncertainty and that could keep the bears growling.
Admin Note: Sign up for (or sign into) the AutoTracker before the end of the year to make sure you get in before the start of the new year when we starts tracking the 2025 returns.
The S&P 500 (C-fund) was down slightly but the news was the early 60-point gain vanishing, which is not unusual the day after a major sell off. They could try to fill that post-election day gap or it can try to hold again in the current area where the October peak and the November lows were.
DWCPF (S-fund) is in a similar situation although this chart is already filling in that open gap, but trying to hold at other rising support.
ACWX (the I-fund tracking index) was up 0.04% yesterday, the I-fund was given a 2.07% loss. It hung around yesterday but it is lingering below some major support.
You can see the updated I-fund and other TSP share prices and returns, usually posted daily by 8:30 PM ET here: https://www.tsptalk.com/tsp_share_prices.php
BND (bonds / F-fund) has also fallen below its 200-day EMA as the new lower low keeps the downtrend in bonds alive. Just above the 71.50 area could be a good place for a bounce to start, although there is another open gap down by 71.
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 use additional methods and strategies to determine fund positions.
