It’s been a VERY tough month for the TSP stock funds. The C fund is down almost 6% for the month! If you’re a follower of this site, you know that my #1 Rule is DON’T LOSE MONEY. That being the case, I’ve had a ton of questions over the past week regarding current allocations.
I was fully invested in the stock funds when the market headed south on 4 October. Since then the S&P500 (C Fund) has been down 12 trading days and up 2 trading days. In fact, the C fund gapped down thru the 50DMA AND the 200DMA in 2 days (10 and 11 October)! The bottom line is, if you were in the stock funds on 4 October, there has not been a reasonable time to move to the G fund during this correction. Any reallocation was an emotionally based, panic reaction. We have seen a lot of volatility around the 200DMA for the past 9 trading days but, today may be the near term bottom and here’s why…
The market has been driven by tech, specifically the FANG (FaceBook, Apple, Netflix, Google) stocks and other Silicon Valley stocks since the breakout in 2016. If the rally is to continue, these stocks will lead the way. The broad index that tracks these stocks is the NASDAQ Composite Index ($COMP or QQQ). In the $COMP chart below we can see today’s giant reversal. We hit a new intra-day low then reversed almost all the way back to the 200DMA. The key right now are the technical indicators. If the Wm%R and RSI continue higher, prices will move higher. The indicators seem to be stabilizing so, I’m cautiously optimistic. In the short run, we COULD see prices move higher from here; possibly as high as the 50DMA. That’s the best case scenario. If/when the $COMP or $SPX (C Fund) hit the 50DMA I’d seriously consider reallocating to the G fund. Why?
The 5 wave count is a serious technical problem for the long term. IF the 5th leg down is complete then we should see a 3 leg recovery up to approximately the 50DMA. After that, a much longer decline is very likely… I would use a rally to the 50DMA to reduce losses and move to the G fund. If the market gets above the 50DMA, stabilizes and moves higher, then consider moving back to the stock funds.
The real problem for active TSP investors right now is the inherent restrictions of 2 reallocations per calendar month. I made a move in early October. If I make a move to the G fund now, I can’t move back into the stock funds until 1 November; that’s 6 trading days! The market could easily run to the 50DMA within the next 6 days… This rule seriously hurts TSP investors who are trying to maximize their retirement nest egg.
We are likely at/near a short term market low, therefore, I am not reallocating to the G fund now. I am watching the technical indicators closely and am cautiously optimistic for a near term recovery rally.
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Stay Alert! Volatility will continue!!