Sunday Update: 05 April 2020

While the TSP stock funds finished lower, the market took a bit of a breather this week.  Volatility decreased across the board as huge gains in the price of oil paused double digit declines in stock prices; at least for the time being…  For the week the C fund was down 2.08%, S fund down 7.17%, I fund down 3.71%, and F fund down 0.30%.  

We are in a BEAR MARKET.  What does that mean exactly??  The main stream financial media defines a Bear Market as a 20% decline from the all-time market highs.  By this definition, as long as the price of the S&P500 (C fund) stays below 2720, we are in a Bear Market.  That’s great for a sound bite but, how does that help us make reallocation decisions to maximize gains and minimize losses in this environment?  How will we know when we have hit the bottom of this market??

Watching the charts, moving averages, support/resistance levels are clearly important.  Additionally, one CRITICAL concept to understand is market Breadth.  Market Breadth is the ratio of advancing vs declining stocks or the ratio of stocks making new All-Time highs vs new All-Time lows.  For a Bear market to finally hit bottom and begin a new Bull market, we need to first see more stocks advancing than declining.  Next we need to see more stocks making new all-time high than all-time lows.  We are absolutely NOT seeing that in the market right now!  Investors Business Daily publishes a proprietary Hi-Lo Ratio indicator that captures this concept.  The indicator currently stands at 0.04 and needs to rise to 0.10 to identify a possible bottom.  Last week the C fund surged to recoup almost 35% of its losses from the highs.  This week the markets stabilized a bit with relatively low volatility price swings.  Having said that, breadth continues to deteriorate.  UNLESS breadth improves dramatically, we have NOT seen the lows of this Bear Market…

Bear Traps

The chart below shows the 2007 – 2009 Bear Market.  What makes these markets so devastating to your TSP account is the number of false positives, the emotional drain of watching huge price swings, and the time it takes to hit a final bottom.  The 5 Bear Traps circled in the chart show multi-week rallies within the overall collapsing market.  Some of those rallies, like last week, can be extremely strong.  They can suck you in because of FOMO (FEAR of Missing Out), only to roll over to lower lows…

Here is the C fund currently.  I DO NOT have a crystal ball but, I would NOT bet my TSP account on the market going significantly higher from here anytime soon…

Where Are We Now???

Bottom Line: Market Risk is very high!  IF breadth improves AND prices find support THEN I will think about easing back into the stock funds.  For now, I’m collecting my very small return in the G fund…

Have a great week!

Jerry