Stocks briefly turned negative after the opening bell on Friday morning, but the bulls quickly jumped in to tack onto the gains of Thursday huge reversal day. The Dow jumped 835-points. We started to hear a lot about how stocks tend to bottom as, or shortly after, a major military invasion ensues, and the market did not disappoint last week. But there's other trouble on the horizon and investors will have to start to consider how much of the bad news is already priced in. The market generally looks ahead - not behind, so this Friday's jobs report and the upcoming FOMC meeting later this month will be the focus.
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And what did I do? I sold my SSO (S&P 500 2x long ETF) during the capitulation like sell off just as the S&P was bouncing a few points off the lows of the morning, suspecting I could be getting out before it got really ugly. I had just finished telling you that it's a time to be buying, not selling. Now that's panic at its finest. Would have I sold SSO Friday after two big day's of rallying? I don't know. I didn't have to think about it, but it would have been nice to have been in that position to consider it.
So this isn't an easy game, and as much time as we spend battling the market and other traders, the majority of the time we are also battling ourselves, fear, greed, and our egos.
As for the TSP, I was OK, but could have played it better. I had used all of my IFT's for February (couldn't buy anymore) but I had left a modest chunk in the stock funds looking for a chance to sell a rally, which we didn't get until Thursday and Friday, and now I have the decision to make whether this massive reversal and rally needs to be sold now, or embraced in March when I get my new IFTs.
Of course you all have the same decisions to make and even if we all come to the same conclusions about the market, we aren't all in the same situation. Some of you are retired and probably shouldn't be taking big risks in your account if you depend on your TSP for income. The volatile is high, the environment is risky and potentially dangerous. Some of you may be just starting out and trying to get something growing in your account, in which case you can roll the dice a lot more.
So, I think we head into the new week, which will turn into a new month tomorrow, with a refresh of what we think is going on. My thoughts now are focused on how much of the bad news that is present to the market right now, has already priced in.
History suggests that the threat of war is more dangerous to the market than the actual war itself, and last week was indicative of that. A "sell the rumor, buy the news" kind of thing. The market is always looking ahead, so the invasion is yesterday's news, and the market has basically reacted already, and it is moving onto the next issue.
What about the price of oil? It hit $100 a barrel on Thursday, so we all know what's coming next for gasoline prices, but the market swatted $100 back down and that reversal almost looks like it could be at least a short tem topping formation. It looks like $90 is some key short term support.
How about interest rates? They are going to go up. The recent activity has made it less obvious about whether we get a 0.25% or 0.50% rate hike later this month, but it's been well known that we could be getting 5 to 7 hikes over the next couple of years. How much of that has been priced in already?
The bond market saw the 10-year yield move from near 1.1% last summer to 2.0% in recent months so it has priced a lot of that hike in already.
And once the Fed does start raising rates, will that be another opportunity to buy the news after we spent the last couple of months selling the rumor?
Historically it looks like stocks do well 6 - 12 months after that first rate hike, but perhaps the first few months can be touch and go.
The S&P 500 was down about 15% from its highs during last weeks lows, and the Nasdaq hit -20%. Small caps have been worse. These are typical stock market correction targets, but things can get worse if we are actually entering into a bear market. Let's see how investors reaction to last week's gyrations. We may know soon enough if the bear market is here, or if this just another buying opportunity after a meaningful correction.
There is a tendency for weakness in a month where the prior month ends in a big rally. Like February, the late January rally continued into early February, but from there... not so good.
The S&P 500 (C-fund) gained 96-points, or 2.24% on Friday taking it 270-points off of Thursday morning's low, or 6.6%. It's up against resistance, the 200-day EMA, and about 115-points away from testing its 50-day EMA. 4400, 4405, and near 4450 look to be the imminent resistance areas for this rebound to conquer.
The weekly chart shows an impressive reversal which can lead to follow through upside, but the chart does have its issues. For one thing, that 40-week moving average (green) can be tough to get back above, once it has been broken. The last two times that it broke, it led to a test of the 200-week EMA, and that is a long way down still.
The DWCPF (small caps / S-fund) has some clear lines in the sand. Momentum is on the bulls' side but the chart right now is in the hands of the bears who have been selling at some of nearby resistance areas.
The EFA (I-fund) is back in that trading channel after breaking below it again. There is an open gap below that thick red support line. The 50-day EMA is about to fall below its 200-day average and often that generates an oversold rally, which obviously started already on Thursday.
BND (Bonds / F-fund) was up, but only slightly as yields dipped. The trading channel is still mostly intact, but any gains today would likely break that, so perhaps bonds are due for a relief rally. There are certainly a lot of overhead gaps that probably want to be filled.
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 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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Not to beat a dead horse, but it was certainly a teachable moment for me, when I was reminded last week how much easier it is to analyze the market and come up with a plan, than it is to execute the plan in the heat of the battle. This is what I wrote in Thursday's commentary (actually wrote it on Wednesday evening), before we got the Russia invasion announcement and breakdown in the chart...
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"We haven't seen a capitulation low yet where we get a big gap down and something like a TV special on CNBC about the "Market in Crisis", etc., so perhaps there's more downside to come, but the fear is getting more pronounced and if we see a breakdown below that support, it will likely be a high volume panicky move that could be a good place to put money to work if you have any. But this is, or could be, a bear market, and big rallies in bear markets are inevitable, although fleeting and that means we have to stay nimble."
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And what did I do? I sold my SSO (S&P 500 2x long ETF) during the capitulation like sell off just as the S&P was bouncing a few points off the lows of the morning, suspecting I could be getting out before it got really ugly. I had just finished telling you that it's a time to be buying, not selling. Now that's panic at its finest. Would have I sold SSO Friday after two big day's of rallying? I don't know. I didn't have to think about it, but it would have been nice to have been in that position to consider it.
So this isn't an easy game, and as much time as we spend battling the market and other traders, the majority of the time we are also battling ourselves, fear, greed, and our egos.
As for the TSP, I was OK, but could have played it better. I had used all of my IFT's for February (couldn't buy anymore) but I had left a modest chunk in the stock funds looking for a chance to sell a rally, which we didn't get until Thursday and Friday, and now I have the decision to make whether this massive reversal and rally needs to be sold now, or embraced in March when I get my new IFTs.
Of course you all have the same decisions to make and even if we all come to the same conclusions about the market, we aren't all in the same situation. Some of you are retired and probably shouldn't be taking big risks in your account if you depend on your TSP for income. The volatile is high, the environment is risky and potentially dangerous. Some of you may be just starting out and trying to get something growing in your account, in which case you can roll the dice a lot more.
So, I think we head into the new week, which will turn into a new month tomorrow, with a refresh of what we think is going on. My thoughts now are focused on how much of the bad news that is present to the market right now, has already priced in.
History suggests that the threat of war is more dangerous to the market than the actual war itself, and last week was indicative of that. A "sell the rumor, buy the news" kind of thing. The market is always looking ahead, so the invasion is yesterday's news, and the market has basically reacted already, and it is moving onto the next issue.
What about the price of oil? It hit $100 a barrel on Thursday, so we all know what's coming next for gasoline prices, but the market swatted $100 back down and that reversal almost looks like it could be at least a short tem topping formation. It looks like $90 is some key short term support.
How about interest rates? They are going to go up. The recent activity has made it less obvious about whether we get a 0.25% or 0.50% rate hike later this month, but it's been well known that we could be getting 5 to 7 hikes over the next couple of years. How much of that has been priced in already?
The bond market saw the 10-year yield move from near 1.1% last summer to 2.0% in recent months so it has priced a lot of that hike in already.
And once the Fed does start raising rates, will that be another opportunity to buy the news after we spent the last couple of months selling the rumor?
Historically it looks like stocks do well 6 - 12 months after that first rate hike, but perhaps the first few months can be touch and go.
The S&P 500 was down about 15% from its highs during last weeks lows, and the Nasdaq hit -20%. Small caps have been worse. These are typical stock market correction targets, but things can get worse if we are actually entering into a bear market. Let's see how investors reaction to last week's gyrations. We may know soon enough if the bear market is here, or if this just another buying opportunity after a meaningful correction.
There is a tendency for weakness in a month where the prior month ends in a big rally. Like February, the late January rally continued into early February, but from there... not so good.
The S&P 500 (C-fund) gained 96-points, or 2.24% on Friday taking it 270-points off of Thursday morning's low, or 6.6%. It's up against resistance, the 200-day EMA, and about 115-points away from testing its 50-day EMA. 4400, 4405, and near 4450 look to be the imminent resistance areas for this rebound to conquer.
The weekly chart shows an impressive reversal which can lead to follow through upside, but the chart does have its issues. For one thing, that 40-week moving average (green) can be tough to get back above, once it has been broken. The last two times that it broke, it led to a test of the 200-week EMA, and that is a long way down still.
The DWCPF (small caps / S-fund) has some clear lines in the sand. Momentum is on the bulls' side but the chart right now is in the hands of the bears who have been selling at some of nearby resistance areas.
The EFA (I-fund) is back in that trading channel after breaking below it again. There is an open gap below that thick red support line. The 50-day EMA is about to fall below its 200-day average and often that generates an oversold rally, which obviously started already on Thursday.
BND (Bonds / F-fund) was up, but only slightly as yields dipped. The trading channel is still mostly intact, but any gains today would likely break that, so perhaps bonds are due for a relief rally. There are certainly a lot of overhead gaps that probably want to be filled.
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 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.
