This is an extremely technical alert, taking into account layers of technical analysis AND the TSP reallocation rules. If you’ve been reading the Weekly Update Newsletters and following the Weekly Update Show, you know that we have been watching the S&P500 (C fund) very closely with respect to its 10DMA (Day Moving Average). We have also been watching the progressive roll over of the S&P500 technical indicators on the chart. Beginning with last Wednesday’s Engulfing Candlestick, the C fund has been fighting to maintain support at its 10DMA. Yesterday’s reversal day ended that fight to the downside.
The 5 month chart of the C fund below shows each day represented by candlesticks. We use candlesticks because they give us an unbelievable amount of intra-day information. We can see that yesterday, price opened on the 10DMA line and ran all the way up to 3700 before reversing. By the end of the day price had dropped to below 3650, closing at the low of the day’s trading range, and clearly below the 10DMA. The important take-away from this chart is the daily price action over the past several days that we can see using Candlesticks.
The C fund chart below is the same as above except each day is represented by a dot. The dot is the daily closing price. Using a dot rather than a candlestick, we can take away some of the noise of the chart and see how clearly price is below the 10DMA. You can see where price attempted to find support on Wednesday, Thursday and Friday of last week. That support clearly failed on Monday. The 10DMA is now likely to act as resistance. Look at what happened in September and October in the chart below. Once price fell below the 10DMA it moved significantly lower. This method does NOT work 100% of the time, as you can see from the one day in November when price closed below the 10DMA and then continued higher.
We are currently in the best possible position in terms of the TSP rules. This is the first reallocation of the month which means we can still get back into the stock funds IF conditions warrant. The additional move we have dramatically reduces the risk of making this reallocation. The only possible downside of this reallocation is that we miss some additional upside if the market reverses higher before we get back in. The upside is that we have locked in 6.2% on the C fund and 16.7% on the S fund. If you followed along with the last Alert on 4 November, your TSP account should be higher by 11.5%.
Bottom Line: We have enjoyed a great run over the past 6 weeks. Given the current analysis of the charts and the remaining move that we have for the month, I am very comfortable locking in these gains and waiting for the next opportunity to move back into the stock funds.
As always, technical analysis is as much art as science. I am making this reallocation based on MY personal circumstances and risk tolerance. Feel free to follow along with my allocation and/or use this analysis to make your own reallocation decisions. This is NOT a recommendation for what you should do with your personal TSP account. You need to make that decision based on YOUR circumstances and personal risk tolerance.
Have a great week!