The market has clawed its way back to just about flat since our last Alert on 10 May. Since that time, the C fund found support at its 50DMA and has made incremental moves higher. The C fund currently sits just under 1% below its all-time high. The I fund found support at its 50DMA and also moved higher. The I fund currently sits fractionally above its most recent all-time high. Unfortunately, a number of indicators present significant headwinds and raise serious concerns for the continuation of this rally.
In the 6 month daily chart of the C fund below, we see price finding support at its 50DMA 4 times since February 2021. In each of the previous 3 tests of support we saw strong V shaped rebounds. The most recent test of the 50DMA is significantly different. The price rebound has not been strong, and has come on big volume down days compared to up days. The RSI is struggling to maintain an up-trend, and the MACD is yet to cross to the upside.
The S fund continues to under-perform the C and I funds. After finding support at its lower channel line in mid-May, the S fund has barely recovered. Today’s negative outside reversal day after hitting resistance at the 50DMA is extremely bearish! A gap down below its 10DMA line would be the final nail in the coffin for the S fund.
The I fund has performed the best of the 3 TSP stock funds since finding support at its 50DMA in mid-May. The I fund is currently at a new all-time high but, reversed today at its upper trend line. Each time the I fund has hit this trend line, since the beginning of 2021, it has reversed to test the 50DMA again.
The F fund is by far, the best looking chart of all the TSP funds! The F fund put in a significant bottom in mid-March. It then rallied back above its 50DMA and consolidated for 5 weeks. As of today’s close, the F fund is above its most recent high of mid-April with strong volume on up days. The F fund is in a great position to continue higher.
We discussed the Dow Jones Transportation Average Index at great length in both the Weekly Update Newsletter and the Weekly Update Show this weekend. The Transports have had a huge run since February and have consolidated since the early May reversal day. Today’s negative outside day after hitting resistance at the 10DMA is very bearish! This is confirmed by the huge volume on today’s down day. The Transports look to be in serious trouble right now.
Today was an important day for the market. While the TSP funds did not get hit too badly, many underlying sectors got crushed. It is possible that we are seeing the beginning of a sector rotation that will not adversely affect the broad TSP index funds. Having said that, the downside risk seriously outweighs the possibility of continued upside gains.
IF I had another IFT available for the month, I would allocate a significant percentage to the F fund. Because that is not an option, I will sit on the sidelines in the G fund and watch for an opportunity to re-enter the stock funds.