Ratios…

Charting ratios can really help us to “see” what’s happening in the underlying market.  Knowing where money is flowing can help us anticipate price movements within the TSP stock funds.  One VERY USEFUL ratio is Consumer Staples vs Nasdaq Composite Index (the chart below).

Consumer Staples are products that people use every day.  They are more needs than wants.  They include companies like Proctor and Gamble, Phillip Morris, Hormel Foods, Costco, …  The Nasdaq Composite Index is mostly big tech companies like FaceBook, Apple, Google, Netflix, Amazon…

When the market is running on all cylinders, interest rates are low, consumer confidence is high, etc, money tends to flow to tech companies and drives TSP stock fund prices higher.  When these factors change, investors tend to move from tech to the comparative safety of Consumer Staples.  This often coincides with the top of the market.

The chart below is the RATIO of Consumer Staples (XLP) over Nasdaq Composite ($COMPQ).  This is not a price chart.  It is a chart of the ratio.  The ratio moves higher when more money flows into the XLP than into the $COMPQ.  When this happens, TSP stock prices tend to fall.  This can be seen in the lower chart of the S&P500 (C fund) over the same time frame.

The ratio chart looks to be finding support at its trend line.  This is coinciding with a retest of the last major top for the C fund.  If the trend line of the ratio chart holds, the TSP stock funds are likely to roll over.  If the ratio chart breaks down thru its trend line, the TSP stock funds move higher.

I’m keeping a close eye on this ratio chart!

Jerry