The rubber band finally snapped. The market had lulled investors into buying two day dips because we hadn't seen three down days in a row in over three months. Those that bought this week's Tuesday / Wednesday dip were dealt a dose of reality yesterday. The Dow lost 1862-points and, as for the S&P 500 which lost 188-points or nearly 6%, while dramatic, the decline really only put it where it was about 11 days ago. It felt "crashy", but it's only down to the May 27 levels.
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The market had been sustaining an historic rebound off the March lows, following the dramatic decline. Overshooting targets, both support levels on the downside, and then resistance levels on the upside, had become part of the game making it very difficult even for those who had been down these roads before and thought they could navigate the technical volatility. But the market can be cruel.
There was a theory that there was a lot of "new money" in the market brought in because sports betting had been shut down across the country and the new commission free stock trades were the perfect outlet for those looking for a different kind of gambling opportunity.
We had heard stats like Robinhood customers - the first commission free brokerage website - had been outperforming billionaire hedge fund manager dramatically this year. I closely follow several smart money / dumb money indicators and we saw the dumb money getting extremely bullish in recent weeks, while the smart money enthusiasm was fading. That's usually a pretty good warning sign, but we saw extremes in some of these indicators for quite a while, and fading the dumb money was becoming a losing proposition - at least until yesterday, although the market is still up tremendously since the March lows.
As if on cue, the market seemed to recognize my capitulation as I had just recently given up on being short (betting against) the market after many weeks of expecting another decline. I hadn't gone as far as buying anything yet, thank goodness, but our Plus subscribers know we had sold TZA (3 X short the Russell 2000) in our ETF System on Wednesday after taking a quick 8% gain in a couple of days. That means we missed yesterday's 22% gain in TZA! Ugh! I had become so gun shy on my bearish position that I couldn't get myself to hold on just one more day.To use a phrase as benign as I can say in public - that's the way the cookie crumbles. There's an old saying in investing and that is, be right and sit tight. We sat for a long time, but the market still waited until we gave up before making it's move. It felt like we were in the Truman Show. It's been a rough year for those of us trying to short this rebound.
We just lost a couple of weeks worth of gains in three days and what happens from here is a good question. Is this just a typical pullback, a 10 - 15% correction as we talked about yesterday, or will this have momentum and make an attempt to test the lows, which seemed like a pipedream for the last couple of months?
The market had sucked in a lot of people and it took about 8-9 weeks of rallying to create the bullish frenzy, so how long will it take to unwind that sentiment?
Back in March when stocks were tumbling, we did see some giant rallies about every 3 or 4 days, and at that time they were selling opportunities. It may be too early to know if this decline needs to be bought, or if investors should be selling what could be brief rallies like we saw in March.
A 10 - 15% correction would be fine, and the way the economy had been coming back has been promising, but as I have been saying, black swan events may be prevalent this summer as the political rhetoric picks up heading into this fall's election. And, as businesses reopen, the talk of a possible second wave of the coronavirus is circulating, which could unwind confidence again.
The S&P 500 (C-fund) tanked falling through a couple of layers of support. The 50 and 200-day EMAs are still below and could act as support during this pullback. There's an open gap near 2860 that could always be a target. Since yesterday was the first 3 day losing streak since early March, a relief rally after a third straight down day is possible, but the question is how will investors react to a relief rally?
The DWCPF (S-fund) fell nearly 7% down to the 200-day EMA. The 1300 area looks like a must hold area if this wants to avoid a possible test of the lows, which is still possible, but of course a correction doesn't have to go that far down.
The EFA (I-fund) fell below both the 200 day SMA and the 200-day EMA yesterday, which is technically quite troubling, but there are other levels of support near 59.
In yesterday's commentary I said the Dow Transportation Index may look for support at those obvious levels [9500], or "a very weak open will gap it down below that support." It did the gap thingy.
The BND (F-fund) rallied early but faded and actually closed down for the day. I don't know if the F-fund will be negative (the price hasn't been posted yet), because...
... yields had fallen dramatically and bond prices almost always go up when that happens. So I'm not really sure why BND went negative.
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. Have a great weekend!
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="align: center"]
[/TR]
[/TABLE]
The market had been sustaining an historic rebound off the March lows, following the dramatic decline. Overshooting targets, both support levels on the downside, and then resistance levels on the upside, had become part of the game making it very difficult even for those who had been down these roads before and thought they could navigate the technical volatility. But the market can be cruel.
There was a theory that there was a lot of "new money" in the market brought in because sports betting had been shut down across the country and the new commission free stock trades were the perfect outlet for those looking for a different kind of gambling opportunity.
We had heard stats like Robinhood customers - the first commission free brokerage website - had been outperforming billionaire hedge fund manager dramatically this year. I closely follow several smart money / dumb money indicators and we saw the dumb money getting extremely bullish in recent weeks, while the smart money enthusiasm was fading. That's usually a pretty good warning sign, but we saw extremes in some of these indicators for quite a while, and fading the dumb money was becoming a losing proposition - at least until yesterday, although the market is still up tremendously since the March lows.
As if on cue, the market seemed to recognize my capitulation as I had just recently given up on being short (betting against) the market after many weeks of expecting another decline. I hadn't gone as far as buying anything yet, thank goodness, but our Plus subscribers know we had sold TZA (3 X short the Russell 2000) in our ETF System on Wednesday after taking a quick 8% gain in a couple of days. That means we missed yesterday's 22% gain in TZA! Ugh! I had become so gun shy on my bearish position that I couldn't get myself to hold on just one more day.To use a phrase as benign as I can say in public - that's the way the cookie crumbles. There's an old saying in investing and that is, be right and sit tight. We sat for a long time, but the market still waited until we gave up before making it's move. It felt like we were in the Truman Show. It's been a rough year for those of us trying to short this rebound.
We just lost a couple of weeks worth of gains in three days and what happens from here is a good question. Is this just a typical pullback, a 10 - 15% correction as we talked about yesterday, or will this have momentum and make an attempt to test the lows, which seemed like a pipedream for the last couple of months?
The market had sucked in a lot of people and it took about 8-9 weeks of rallying to create the bullish frenzy, so how long will it take to unwind that sentiment?
Back in March when stocks were tumbling, we did see some giant rallies about every 3 or 4 days, and at that time they were selling opportunities. It may be too early to know if this decline needs to be bought, or if investors should be selling what could be brief rallies like we saw in March.
A 10 - 15% correction would be fine, and the way the economy had been coming back has been promising, but as I have been saying, black swan events may be prevalent this summer as the political rhetoric picks up heading into this fall's election. And, as businesses reopen, the talk of a possible second wave of the coronavirus is circulating, which could unwind confidence again.
The S&P 500 (C-fund) tanked falling through a couple of layers of support. The 50 and 200-day EMAs are still below and could act as support during this pullback. There's an open gap near 2860 that could always be a target. Since yesterday was the first 3 day losing streak since early March, a relief rally after a third straight down day is possible, but the question is how will investors react to a relief rally?
The DWCPF (S-fund) fell nearly 7% down to the 200-day EMA. The 1300 area looks like a must hold area if this wants to avoid a possible test of the lows, which is still possible, but of course a correction doesn't have to go that far down.
The EFA (I-fund) fell below both the 200 day SMA and the 200-day EMA yesterday, which is technically quite troubling, but there are other levels of support near 59.
In yesterday's commentary I said the Dow Transportation Index may look for support at those obvious levels [9500], or "a very weak open will gap it down below that support." It did the gap thingy.
The BND (F-fund) rallied early but faded and actually closed down for the day. I don't know if the F-fund will be negative (the price hasn't been posted yet), because...
... yields had fallen dramatically and bond prices almost always go up when that happens. So I'm not really sure why BND went negative.
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. Have a great weekend!
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.
