Sunday Update: 08 March 2020

It was another wild ride on Wall Street this week!  After months of very low volatility, we just had 5 consecutive days of 2% or greater price swings.    That hasn’t happened since the throws of the financial crisis in 2008!  

For all the HUGE price moves, by the end of the week little had changed in terms of closing price compared to last week.  The C fund actually finished in the green with a gain of 0.61%, S fund was down 1.72%, I fund was down 0.79%, and the F fund was up 1.62%.  In the short term, this was a consolidation week for the market.  It set the upper and lower limits for what is likely to be a protracted consolidation.  In the long term, the C fund is sitting almost 10% above the long term trend line; the next significant support level.

Long Term

As we discussed in last week’s Sunday Update, the C fund has a long way to go before hitting the first significant support level; the long term trend line.  This scenario would look something like the October to December correction of 2018.  If the trend line does not hold, the next support is one of the Fibonacci levels.  The final bottom of this correction is likely several weeks to months away.  In the long term, we will have to be patient and let it play out.  

Short Term

The short term picture is much different.  This weeks huge price swings oscillated back and forth along the 200DMA.  Wednesday’s high filled the gap from last week but hit resistance at the 10DMA, rolling over on Thursday.  Friday’s gap down was not a good sign but, the C fund did finish above last week’s low of 2850.  A close below 2850 would likely be the beginning of the next major leg down.    

The S fund is in a technically worse situation than the C fund.  On the S fund chart below we can see this week’s rally stopped as the 10DMA crossed down thru the 200DMA.  Importantly, this week’s low undercut last week’s low.  That is a very bearish sign…  

The I fund managed to stay above last week’s intra-week low but could not push thru its 10DMA.  Additionally, the I fund sits significantly below its 200DMA.  

The one shining spot for the TSP during this crisis has been the F fund!  As bond yields fall their prices move higher.  Since the F fund (AGG) is a composite of corporate and government bonds, the price of the F fund moves higher as yields move lower.  As you can see from the chart below, this rate of growth in the F fund is unsustainable in the long term.  A strong rally in stocks, even just a multi-week relief rally, will likely cause the F fund to drop like a rock…  Until then, the F fund is the only fund making money.

Bottom Line: The market is trying to establish some kind of near term bottom.  It could take several more weeks of big volatility as a bottom pattern forms.  Either way, the MOST LIKELY direction of the next significant move is down.  IF the S&P500 breaks down below 2850 then the next important support level is the long term trend line, approximately 2700.  IF we get down to the 2700 neighborhood, I would expect a major relief rally higher from there.  

These major price swings are likely to be with us for a while.  We can’t play short term moves effectively within the rules of TSP.  Wait for a bottoming pattern to emerge and be ready.

Have a great week!

Jerry