September is in the record books along with the quarter.  The S&P500 (C fund) rose for the 8th consecutive quarter!  The last time this happened was 20 yrs ago.  There’s a lot of optimism in the financial news.  Stock markets around the world are strong and the trend certainly continues to point in that direction.  Having said all that, a technical analysis of this market makes investing in the stock funds look very risky right now.  

Rule #1 is: Do Not Lose Money.  Rule #2 is: You Have To Be In The Market To Make Money.

How do we reconcile those 2 rules?  By managing risk.  That’s the beauty of technical analysis and utilizing charts as the primary means of making allocation decisions in TSP.  The charts take away the emotion and allow you to make decisions several steps in advance.  

Below is the 10 year chart of the S&P500 (C fund).  It’s a beautiful representation of the 5 steps in an Elliott Wave.  The 5th and final leg of the pattern is probably not yet complete but, it’s getting pretty close.  Knowing this, you can manage the risk.  Technical tools like MACD/Stochastic, Moving Averages, Trend Lines, etc.. can be very helpful but, knowing where we are in the market cycle is the starting point to good risk management.   

Short Term

The C fund pushed to new highs this week after rolling over a bit last week.  If you are thinking about getting into the stock funds on a short term basis, a good time would be when the price comes down to the trend line or the 50 Day Moving Average (DMA) line in blue below.  Over the past 6 months the price chart has found support at or near the 50DMA.  With the MACD and Stochastic turning higher, we might see prices move higher in the short term.

Long Term

In the long term, things have not changed much since last week.  We still have a strong divergence going on between the price chart and the MACD/Stochastic on all three TSP stock fund charts.  The RSI is topped out on all 3 funds and some pretty strong trend lines are in place.  

If you are looking to get into the stock funds on a more long term basis, follow the S and I trend lines closely.  The next time we hit the trend line on the S fund could be a reasonable time to buy.  The I fund trend line has been in place for almost a year.  As long as this line holds, investing in the I fund may still get you some gains.

This market will resolve itself at some point in the near future.  There is no way to know how much higher prices can go before rolling over.  Knowing where the market is in the big scheme of things (the 10 year C fund chart above) can really help in making short term allocation decisions…

October begins next week.  We could be in for a wild ride…

Jerry