Forest and the Trees

It was a very exciting week for the TSP stock funds!  Tuesday’s big price move was a confirmation of the current rally.  The market rolled higher all week until we saw a bit of a shock on Friday following General Flynn’s guilty plea.  Daily events may drive prices in the very short term but, a look at the longer charts help us keep things in perspective.  The short term chart is below but, this week we will focus on the very long term.

This week we’re going to take a look at the 10 year monthly charts of all 3 TSP stock funds.  Since the TSP is a long term retirement vehicle, it pays to know where we are in the long term, really understand the risk going forward, and not get carried away by the daily price moves…  See the Forest..

When looking at the 10 year monthly charts below there are a few things to keep in mind.  Each vertical rectangle (candle stick) represents 1 month of price swings.  When the monthly price is higher than the month before, the rectangle is white.  When the monthly price is lower, the rectangle is red.  The vertical line on the top or bottom of the chart represents the high or low price within that month.  

Monthly charts give us a very long term perspective of where we are in the market cycle.  A historically average bull market is about 8 years long, from the beginning low to the final high.  The current rally has been going strong for almost 9 years.  There is no way to know just how much longer or how much higher the current rally will go but, it helps to understand the average history to put things in perspective.  On all 3 stock funds below, we have seen the rally since 2009 unfold in a 5 step pattern.  We are in the 5th step in each of the funds.  The market risk right now is very high.

Monthly charts allow us to see long term patterns without the “noise” of daily price moves.  This smooths out the indicators and makes their reversals extremely important.  For example, in the chart below you can see where the black MACD line turned up and crossed the red MACD line in mid 2009.  At the same time, the Stochastic moved from negative to positive and the RSI had just come out of over sold territory.  This was the least risky time to get back into the stock funds in 2009.  

Going the other way, just before the final price high of leg 3, the black MACD line turned down and crossed the red line in January 2015.  At the same time, the Stochastic turned negative and the RSI broke down from over bough levels.  This was the best time to move to the G fund in anticipation of the coming 4 leg.

C Fund 10 Year Monthly

On the monthly chart below you can see that the indicators lead the price rollover near the top of step 3.  We expect to see something similar from the indicators before the final end of step 5.  When the black MACD line turns down and crosses the red line, and the Stochastic turns negative, it will be time to get into the safety of the G fund and avoid the coming correction (crash)..

S Fund 10 Year Monthly

The monthly S fund chart below has played out almost identically to the C fund chart above.  As in the C fund chart, the technical indicators for the S fund point to continued moves higher on a monthly basis.  By closely watching the monthly MACD/Stochastic and RSI indicators we will know when the top is finally in place.

I Fund 10 Year Monthly

The monthly I fund chart looks different from the C and S charts but, the I has still played out in 5 distinct steps.  This chart really shows the value of comparing the price chart and the technical indicators.  In late 2007 the I fund began a serious decline, confirmed by a crossing of the MACD lines, Stochastic turning negative and the RSI moving out of over bought levels.  The decline continued until early 2009 when we got a hint of a bottom when the RSI hit over sold levels.  That was our first indication that a bottom was coming.  Once the MACD lines, Stochastic, and the RSI turned positive in 2009, this was the least risky time to move into the I fund.  Today we see the RSI hitting over bought levels for the first time since 2007!  This does not mean that the top is in but, it means it’s definitely time to pay attention…

Monthly charts are invaluable for understanding the big picture.  They may not tell us when it’s time to pull the trigger but they definitely tell us when to take aim…  It’s pretty clear that we are approaching a top but, not there yet.  We will be watching the monthly technical indicators very closely going forward for early signs of a top.  

Have a great week!