Sunday Update: 25% C Fund, 25% S Fund, 50% G Fund

What an amazing week for the TSP funds!  And a great example of why utilizing the G fund is so important.  Follow me here because this is going to get a little tricky.  This post will be longer than usual, but will hopefully give some perspective on what happened during election week and where we’re headed…

What Happened

Last Friday afternoon, the FBI director announced that he would pursue no legal action against Hillary Clinton based on the emails found on Anthony Weiner’s computer, clearing the way for a Clinton victory.  As a result, the market exploded up from the 200DMA on Monday morning.  On Tuesday (Election Day) the market moved higher again, up to the 50DMA, with futures pointing to a higher open on Wednesday and a presumed Clinton victory.  Here’s where it gets interesting…

As the numbers started rolling in on Tuesday night and it looked like Trump had a chance to actually win the election, the futures turned negative.  By the time it became evident that Trump would in fact win, the futures had fallen over 4%!  The market was clearly not happy with a Trump victory… or was it??

The market opened just a bit negative on Wednesday morning and then proceeded to explode UP thru the 50DMA!  A move of roughly the same magnitude as that of Monday’s move!  How can this be?  The market cheers for an anticipated Clinton victory, crashes on a Trump victory, massively rebounds within a few hours and now loves the Trump victory?!?…  I don’t know how this happened, but I was glad to watch the show from the sidelines of the G Fund, not exposed to the huge risk in the stock funds.

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Where We’re Headed

So what COULD the Trump victory and this week’s rally mean for the TSP funds going forward?  The rally was very strong, on both a daily and weekly basis, for the C and S funds.  The C and S funds are both based on U.S. companies.  A Trump administration is viewed as being very good for U.S. companies in general.  Since we had such a strong move off the 200DMA, we are likely to see some profit taking next week.  Ideally a pull back would find support at the 50DMA or around 2144.  A close below 2121 would signal a likely short term failure of this new rally.

The long term charts of the C and S funds look very strong.  The C fund needs a weekly close above 2200 and the S fund needs a weekly close above 95 to really confirm this new rally attempt.

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The I Fund is a completely different story…  Normally, the three stock funds move up and down together.  We saw a significant change this week where the I fund enjoyed virtually none of the gains had by the C and S funds.  A Trump administration is seen to be very positive for U.S. companies but not necessarily great for the international market.  For example, the Mexican Peso dropped 8% in value versus the dollar on Wednesday.  The I fund chart does not look good at all.  It looks like it will be testing the 52 level before long.

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One of the most fascinating and important charts of the week is the F fund.  The F fund is the Aggregate Bond Index.  I don’t ordinarily include the F fund in the post because it does not correspond to the movement of the stock funds and does not fit into my overall TSP management plan.  Such a big move on the F fund however, does give us an idea of where the market COULD be headed…

The U.S. bond index has been moving up, slowly but steadily, for the past 30 years.  As interest rates have declined, the price of bonds has increased.  The opposite is also true.  If this drop in bonds has signaled the final top then we will likely see interest rates rise over the next several years.  We will also see money moving out of the bond market and into the stock market.  This chart is potentially a great sign for the stock funds going forward.

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At the end of the day, the political landscape has changed but the long term trend change has not yet been confirmed.  We need to see the C fund close above 2200 on a weekly chart for final confirmation.  I expect we are on the way to new highs in the stock funds.  I will be watching for an opportunity to move the other 50% from the G fund to the C and S funds, possible within the next week or two.

Have a great week and please post questions to comments.

Jerry