Death Cross vs Golden Cross

One of the best tools in the technical analysis tool bag is moving average lines.  The 50 Day Moving Average (DMA) and the 200 Day Moving Average (DMA) allow us two different perspectives of the “forest without the trees”.  The 50DMA is the average closing price over the past 50 days while the 200DMA is the average price over the last 200 days.  On the chart, the 50DMA oscillates much more frequently than the 200DMA.  During a Bull Market (prices are moving up) the 50DMA is above the 200DMA with both lines trending up.  During a Bear Market (prices are moving down) the 50DMA is below the 200DMA and both lines are trending down.  

Here’s a simple technique for managing your TSP account over the long term.  When both moving average lines are trending up, you want to be fully invested in the TSP stock funds.  When both moving average lines are trending down, you want to be in the safety of the G fund.  The critical piece here is the transition.  When the 50DMA crosses down thru the 200DMA, this is called “The Death Cross”.  When the 50DMA crosses up thru the 200DMA, this is called “The Golden Cross”.  The moving average lines do not cross very often.  When they do, it is SIGNIFICANT.

The chart below is the Emerging Market Exchange Traded Fund (EEM).  It’s similar to the I Fund (EFA) but includes less stable countries.  As you can see, the EEM experienced a Death Cross in early June and the result on the price chart was brutal…

So where does that leave us with respect to the TSP stock funds?  Take a look at the charts below and draw your own conclusions…  When the EEM price chart above lost support at the 45.50 level, it tanked in a hurry!  The I fund is at this final support level right now!

The C fund still has a ways to go but, it’s not too far from seeing a Death Cross…

The S fund chart still looks very strong having found support at its 50DMA.  Having said that, the S fund will not be able to hold up on its own.  If the C and I fund moving averages turn negative, the S fund will not be far behind…

Bottom Line

IF you are still fully invested in the TSP stock funds, take this analysis for what it’s worth.  Be aware that market risk is extremely high.  Moving average line crossings are a significant event.  Once the trend goes negative, it can take a long time to turn the ship in the other direction.  Forewarned is forearmed!  Good luck…