TSP Talk - The seasonal mid-December struggles continue, but...

Stocks sold off again yesterday, and this time it was a broad decline impacting most of the sectors. The Dow made it 9 losses in a row and small caps continue to be the high beta mover as the S-fund lost over 1% on the day. If there was a silver lining it was there was some buying in final minutes into the close, something we haven't seen much of recently. Yields were down slightly and closed well off their highs heading into today's probable interest rate cut.

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The Dow's 9-day losing streak is now the longest since 1978, which is incredible given the overall bullish market conditions this year versus several bear markets, some devastating, during the 46 years since that previous 9-day loss.

We know about the mid-December swoon by now, and officially there's still a few days left before the Santa Claus rally kicks in, and what this could be is the "sell the rumor" of a Fed that is getting more hawkish with inflation getting more cranky and an economy that is doing better than we anticipated coming into this year, so investors are anticipating some kind of shift in their current dovish policy. That could be setting up a "buy the news" situation.

The FOMC concludes today with a policy statement and the decision on interest rates being announced at 2 PM ET. Expect some fireworks.

Also, we will get the PCE Prices inflation report on Friday, and my guess is that the Fed already knows this number.

So that's my bullish take on what I was talking about yesterday where I was speculating that the negative action of long losing streaks and internal weakness via the advance / decline figures, not shown in the S&P and Nasdaq, could be foretelling something quite nefarious. The truth may be somewhere in between, but the bulls are going to get their chance to prove that wrong in the coming two weeks.

Have you had enough of seasonality data yet? No? Ok... according to sentimenTrader.com, from trading day (TDY) #244 through trading #1 of the new year, stocks have done incredibly well. This year that period extends from the close on 12/18 through January 2.

Since 1953 (71 years) that period has been negative just 5 times. However, 4 or those 5 losses occurred in the last 17 years with last one being 2020. The average return during up year is 2.4%. The average loss during down years is -0.50%. The max gain vs. max loss is about 9% to 1% so just playing the odds, you have to be bullish. Sure, the Patriots could be the Bills this Sunday as 14 point underdogs, but it's not likely. Same thing.

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So again, we have a favorable set up on the calendar.

One other bullish hint I am hearing is that pundits on TV are starting to sound a little nervous as well, and that's a shift, and perhaps a bullish shift. When everyone expects a correction, it may already be priced in.

I hear a lot of folks saying that sentiment is way too bullish but from what I watch, it's not much better than neutral. That CNN Fear & Greed Index is still neutral, so not much bullishness there.

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The sentimenTrader's "Dumb Money" Confidence in a Rally" indicator is at 54%, also about as neutral as you get, especially in a bull market.

How about the AAII Investor Sentiment Survey? Anything over 2.0 is getting into excessive bullishness territory and anything below 1.0 is getting overly bearish. It's currently at 1.37 and that's last week's reading so it may have come down even more. Not too bullish here either.

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This could be considered a red flag based on prior extremes, but it is Fund Manager Cash levels, so it's not your typical "Dumb Money" indicator. They were heavy in cash over a year ago in September of 2023 before the late 2023 and all of the 2024 bull market blast off. Now they have the lowest levels of cash in more than 20 years so they appear to be chasing to pad their annual reports with stocks. That's a little concerning.

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It's always a big day for the market when there is an FOMC meeting, and especially when the Fed is likely to move interest rates. I have been saying that something doesn't feel right, but maybe the Fed will appease investors? It's not their job to boost the stock market, but we all know they look better when things are going well. Many are worried about them turning more hawkish and perhaps that has been the catalyst for the recent weakness in stocks, so as I said above, maybe that is setting up a bullish surprise?

So, I am nervous, but like the TV pundits who tend to be the most worried when stocks are about to rally, and complacent when stocks are ready to rollover, I know this could be a bullish sign, or at least I am trying to fight that worried emotion I have. As I have said before, I don't have instincts look toward the data, not your emotions.

Just look at a stock like Nvidia. It is down 15% since its recent peak. Now everyone is bearish on the stock. How well would you be doing if you bought every 15% decline in this stock over the years? I don't own it currently, but I probably should be considering it soon. Meanwhile Wall Street is now trying to come up with reasons why it is going down, and it's probably too late to think about that...

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That is if my paranoia that I talked about yesterday was really picking up on something?

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.

Also, RevShark wanted to pass this along to all TSP Talk Readers: End-of-year tax planning notes





Unlike many of the other sectors, the S&P 500 (C-fund) is still hanging around its all time highs. That makes this chart look like a bull flag has been forming. There's plenty of reasons to be nervous, but it wouldn't be the first time in the last couple of years, that the S&P 500 and Nasdaq held up while the broader market corrected. Big tech has been the go to defensive play, which is a big change from a decade ago.

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DWCPF (S-fund) continues its slide off the recent highs and while this doesn't look exactly like a bull flag, it does look like a falling wedge, which also tend to break to the upside. You never know when it will change directions, but it is nearing an apex and with the Fed talking today, maybe the bulls will get a catalyst. Either that or it could be the nail in the coffin as it gets closer to that large open gap. Place your bets!

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ACWX (The I-fund tracking index) was down another 0.40% yesterday, the I-fund was given a 0.21% loss. It's falling below more support, and when I see chart falling for no apparent reason, I get a little more concerned that I am missing something.

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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) was flat as it was a quiet day for the bond market in front today's FOMC meeting.

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Thanks so much for reading! We'll see you back here tomorrow.

Tom Crowley


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