Sunday Update: 08 September 2019

We just finished what MAY be a turning point for this correction, at least in the short term…  All 3 of the major stock market indexes, including the Dow Jones Industrial Average (DOW), the S&P500, and the NASDAQ, finished the week above their respective 50DMA (Day Moving Average) AND cleared upside resistance.  In the context of the larger pattern, we are definitely NOT out of the woods.  In the short term however, the downside market risk just became very small and quantifiable.  See the Short Term analysis of the C fund below. 

For the week the C fund was up 1.79%, S fund up 1.03%, and I fund up 2.09%.  This week we’ll take a look at the long term and medium term patterns of the C fund, and then the 1 year daily chart of all 3 TSP stock funds.

Long Term

The long term chart of the C fund below shows the trend line and topping pattern of the longest recovery in U.S history.  From a long term perspective, this rally appears to be sputtering to an end.  We may have already seen the ultimate top (back in July) or we could continue on struggling to a new high.  Either way, the days/months of this rally are likely numbered.  One important sign is the weakening technical indicators.  Since the high in January 2018, while prices continued to make new highs, the technical indicators were making new lows.  This is a clear sign of a weakening underlying market.  The best case scenario is that the C fund finds support at its 12 year trend line, approximately 2600.  Worst case, the C fund completes the expanding triangle pattern at about 2100.  From a Long Term perspective, market risk is still very high.  

Medium Term

From a medium term perspective, the C fund has found support just above its 50WMA (Week Moving Average) and rebounded strongly to the upside this week.  We would like to see such a big price move accompanied by big volume.  This weak level of volume raises concerns for the breakout but, price movement is the primary indicator; volume is secondary.  Given this strong price breakout following support at the 50WMA, market risk on a weekly basis has been greatly reduced this week.  This chart makes a strong argument for prices to move higher over the next several weeks.

Short Term

While the daily volume is not great, the price action in the short term (daily) chart below is very strong.  With Thursday’s gap up thru the 50DMA, and Friday holding those gains, the daily chart is poised to move higher.  Most importantly, We now have quantifiable market risk.  

The 50DMA SHOULD act as a floor/support for prices going forward.  A close below the 50DMA would mean that the correction is continuing.  For example, let’s say you reallocate from the G fund to the C fund at Friday’s closing price of 2978.  We expect the price to continue higher but, if it turns lower, your line in the sand would be a close below 2945 (the 50DMA line).  This gives you a downside risk of just over 1%.  That’s VERY low downside risk…  

The S fund cleared its down trending consolidation that began in early August.  However, it is still hitting resistance at its 50DMA.  This will be an important chart to watch next week.

Although on low volume, the I fund had an explosive week.  The I fund was up over 2% for the week and cleared its 50DMA.  If the I fund can get some stability above the 50DMA, it could make a run at the early July high.

Bottom Line: Price action on all 3 TSP stock funds was very strong this week; that’s the good news.  The bad news is the price moves came on very low volume and September/October are notoriously dangerous months for the stock market.  Is this rally sucking people in, or is it the beginning of something more sustained?… We will find out in the coming weeks.

Have a great week.

Jerry