If The Sky Is Falling, Where is the Floor??

If we thought last week was bad for the stock market, this week is starting off much worse! The Dow fell almost 1200 points today. That’s the single largest one-day point decline in stock market history! If you’re in the TSP stock funds, all of the gains we saw in January are gone (and then some). Right now, things are not looking good for the opening bell tomorrow with S&P500 futures down almost 1.5%. It seems like the sky is falling so, how are you supposed to make an educated decision about your TSP account?

The chart below shows the past 2.5 years on a weekly basis. There are 2 indicators overlaid on the chart that can help give us some perspective and a basis for decisions going forward.

The first indicator is the line that connects the bottoms. This is the 2 year trend line of the S&P500 (C fund). Each time the price came down and touched this line in the past 2 years, it found support then rallied back up to new highs. The longer the trend line, the stronger it is and the more significant if it is broken. We want to see support at the trend line within the next several days.

The second indicator is the 50 Week Moving Average (WMA). This is a rolling 50 week average price that smooths out day to day volatility. If the trend line does not hold, the 50WMA is the next level of support to watch. On a daily basis, the market is very over sold. I expect we will see at least some support at or near the trend line or 50WMA.

Volatility will continue. At least now you have some perspective and tools to make decisions.

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