Sunday Update: 02 June 2019

We just saw the 6th consecutive down week for the S&P500 and the first monthly decline of 2019.  Seemingly, the obvious “cause” for this breakdown is the trade war with China.  There are a handful of other significant economic/political events that pundits are citing as a “cause” including an inverting of the yield curve, talk of tariffs on goods from Mexico, etc.  There is no shortage of unique circumstances occurring that have contributed to this May melt-down.  Here’s the interesting thing…  

Over the past 70 years, the S&P500 has declined 5% or more in May 65 times!  

Think about that for a second.  Over the past 70 years, 93% of the time, the market tanked in May.  This is an amazing stat!  70 years spans both democratic and republican administrations, tech boom/bust, real estate boom/bust, terrorist attacks, multiple wars, great/poor earnings, Brexit, tariffs and Trump Tweets…  What is it about May that pulls the market significantly lower 93% of the time?  We don’t need to answer that question.  The observation that it happens is good enough!  

For this week, the C fund was down 2.62%, S fund down 2.65%, I fund down 2.13%, and F fund up 0.90%.  

Long Term   

The May 05 Sunday Update laid out the 2 most likely scenarios going forward.  Each was based on what happens when the market corrected back to its 50WMA.  As of Friday, the S&P500 has closed just below that level.  If the market finds support at its 50DMA, like it did in early 2018 (see the chart below), then we will see higher highs over the next couple of months.  If the market continues lower and the 50WMA becomes resistance, like we saw in mid to late 2018, then we will likely see prices fall to the 200WMA or lower.

Short Term

The short term view of the stock funds do not inspire confidence that we will get support at current levels.  All 3 TSP stock funds broke down below their respective 200DMA over the past week.  The chart that is most concerning is the S fund.  While the C and I funds are just below their 200DMA and above the early March low, the S fund is now significantly below its 200DMA and below the March low.  There are no support levels, in terms of price, for the S fund until the December 2018 low.  

Bottom Line: The C fund currently sits about 6.5% below its all-time high.  From a technical analysis perspective, the markets do not look good.  The indicators are all trending down and have plenty of room to move lower.  We could see a recovery rally this week since the market is pretty over-sold in the short term but, all indications are that we moving lower from here.  

Have a great week!

Jerry