Coronavirus fears and the uncertainty regarding containment and mitigation again dominated this week’s market volatility. Usually I relate the volatility to S&P moves of over 1% on a daily basis, but this week that daily volatility ranged from 4.89% to 9.51%. The Dow also had daily moves of over 1,000 points every day this week. So let’s break it down further to just Thursday and Friday, the big days. On Wednesday evening, POTUS addressed the nation and the markets reacted negatively to his comments with the S&P 500 losing 9.51% by Thursday’s close. This was also significant in that the S&P 500 fell to a new 52 week low of 2480 (more to follow). On Friday the markets were flat until the last half hour of trading. That was when POTUS announced that “National Emergency” measures would kick in and the S&P 500 gained 9.29% in those last 30 minutes, finishing Friday at 2711. Last week I also mentioned that the Bollinger Band Index (BBI) crossed the “200” threshold, its highest level since we began tracking it at the end of 2015. At Friday’s close the BBI stood at “334”. Why the BBI is significant is that it measures overbought and oversold conditions. It‘s kind of like a rubber band in that the market can only stretch so far in either direction before it snaps back. To give that BBI some historical context, let’s compare this to 24 December 2018. Looking back to that time, the market had a sharp drop, the S&P 500 hit a new 52 week low of 2351 (compare this to Thursday’s close mentioned above), and the BBI was expanding to 178. The market then reversed itself to the upside, and the BBI rubber band snapped back and started to contract. This bullish reversal signaled the start of the bullish market that continued on until 3 weeks ago, when coronavirus fears kicked in. This BBI snap back combined with the market making new 52 week lows was such a defining indicator that I mentioned it in my 2019 year end email. So how does that BBI compare to our current situation? I did a projection that if the S&P 500 stayed at Friday’s closing level through this upcoming week, the BBI would start to contract on Tuesday, 3 days after the S&P 500’s new 52 week low from last Thursday. Looking back again to 24 December 2018, the BBI started it’s snap back four days later on 28 December 2018. Eerily similar? I know this is getting long but let’s look at coronavirus again. I was listening to the news this morning and Dr. Fauci stated that this virus will most probably last between “a few to 8 weeks”, China reported only 8 new cases on Friday, but most significant was what happened while most of us were sleeping last night. At 1 a.m. the House passed a coronavirus aid package with a bipartisan vote of 363 to 40. For TSP TIPS, the actions taken over the last 24 hours combined with the BBI reversal has changed my bearish perspective to that of being increasingly bullish. Given that and the fact that the F fund is no longer hitting new record highs, we are recommended the following allocation.
Coronavirus fears and the uncertainty regarding containment and mitigation again dominated this week’s market volatility. Usually I relate the volatility to S&P moves of over 1% on a daily basis, but this week that daily volatility ranged from 4.89% to 9.51%. The Dow also had daily moves of over 1,000 points every day this week. So let’s break it down further to just Thursday and Friday, the big days. On Wednesday evening, POTUS addressed the nation and the markets reacted negatively to his comments with the S&P 500 losing 9.51% by Thursday’s close. This was also significant in that the S&P 500 fell to a new 52 week low of 2480 (more to follow). On Friday the markets were flat until the last half hour of trading. That was when POTUS announced that “National Emergency” measures would kick in and the S&P 500 gained 9.29% in those last 30 minutes, finishing Friday at 2711. Last week I also mentioned that the Bollinger Band Index (BBI) crossed the “200” threshold, its highest level since we began tracking it at the end of 2015. At Friday’s close the BBI stood at “334”. Why the BBI is significant is that it measures overbought and oversold conditions. It‘s kind of like a rubber band in that the market can only stretch so far in either direction before it snaps back. To give that BBI some historical context, let’s compare this to 24 December 2018. Looking back to that time, the market had a sharp drop, the S&P 500 hit a new 52 week low of 2351 (compare this to Thursday’s close mentioned above), and the BBI was expanding to 178. The market then reversed itself to the upside, and the BBI rubber band snapped back and started to contract. This bullish reversal signaled the start of the bullish market that continued on until 3 weeks ago, when coronavirus fears kicked in. This BBI snap back combined with the market making new 52 week lows was such a defining indicator that I mentioned it in my 2019 year end email. So how does that BBI compare to our current situation? I did a projection that if the S&P 500 stayed at Friday’s closing level through this upcoming week, the BBI would start to contract on Tuesday, 3 days after the S&P 500’s new 52 week low from last Thursday. Looking back again to 24 December 2018, the BBI started it’s snap back four days later on 28 December 2018. Eerily similar? I know this is getting long but let’s look at coronavirus again. I was listening to the news this morning and Dr. Fauci stated that this virus will most probably last between “a few to 8 weeks”, China reported only 8 new cases on Friday, but most significant was what happened while most of us were sleeping last night. At 1 a.m. the House passed a coronavirus aid package with a bipartisan vote of 363 to 40. For TSP TIPS, the actions taken over the last 24 hours combined with the BBI reversal has changed my bearish perspective to that of being increasingly bullish. Given that and the fact that the F fund is no longer hitting new record highs, we are recommended the following allocation.