Current Allocations: 34% C Fund, 33% S Fund, 33% I Fund.

Friday was a very strong, and potentially important, finish to an otherwise tough week for the TSP stock funds.  It seems like there are just as many positive articles as negative about the market right now.  That’s a good thing because it indicates that there is still some fear in the market, which tends to push prices up.  When the majority of the media is calling for an imminent crash, the opposite tends to happen…  2 articles stood out to me this week, one on each side of the argument.

The first discusses the recent trend of retail investors (known in the financial world as “dumb money”) piling into S&P500 based Exchange Traded Funds (ETFs).  Mom and Pop investors have not really been participating in the rally we’ve had since the low in 2009.  Over the past 6 months, this has changed significantly.  Retail investors are piling into the stock market, buying index funds (similar to TSP stock funds) while, at the same time, institutional investors (AKA “smart money”) are selling.  Retail investors as a whole tend to get into the market close to the top.  Having said that, retail investors can push prices up significantly before the actual top but, this is an indicator that the top is coming.    The second lays out an argument for the S&P500 (C Fund) to double over the next 5 years!  It’s a bit technical but worth the read and lays out a sound argument for how this could happen.

I’m not hanging my hat on either argument.  I will continue to watch the short and long term charts and make decisions based on sound technical analysis.  My job is not to predict and hope I’m right.  My job is to be in the stock funds when the trend is up and in the G fund when the trend is down…

Short Term

On Thursday, the S&P got down to almost 2350 before recovering and finishing up a bit for the day.  This is significant since it established a short term resistance level at 2350.  It also intersects with the short term trend line.  On Friday, the S&P bounced off this trend line and closed in the upper end of the days trading range (a good sign).  Friday could be the beginning of a new move up.  We’ll have to wait and see what happens next week.  A close below 2350 is definitely a problem since both the resistance level and trend line would have been violated.

Long Term

The 2 year weekly chart of the C fund is looking really good.  Again, the 2350 level is critical since the longer trend line should act as a floor for the price.  As long as the weekly close stays above this trend line, we’re in good shape.

The S Fund chart is not looking as good.  While the trend line on the C fund chart is now acting as support, the S fund trend line is acting as a ceiling or resistance.  Last weeks reversal was followed by some losses this week and the indicators are definitely rolling over.  We would like to see all 3 stock funds generally rise together.  If the S fund continues lower from here, it will just be a matter of time before the C fund will follow…

The I Fund has been rising steadily since the election in November but has hit the trend line, and possible resistance, this week.  We’ll watch next week to see if the I fund can push thru the trend line and up to the prior high at 65.

As I’ve been saying for the past several weeks, we are close to A TOP.  Whether 2400 turns out to be a significant top remains to be seen but, if you are risk averse, I would consider moving a percentage to the G fund.  I wrote a post in Jerry’s Blog last week about risk.  If you haven’t seen it, you can check it out here.  It’s definitely worth reading to understand how I view risk with respect to TSP management.

Have a great week, post questions to comments and please share!

Jerry