It was another wild week for the market and the TSP stock funds. After gapping up thru the 10 Day Moving Average (DMA) last Friday, the C fund spent the first part of the week consolidating back down to the 10DMA. After finding support, the C fund exploded higher on Thursday and followed thru again on Friday. For the week the C fund was up 0.73%, S fund up 0.01%% and the I fund up 1.41%.
This week I’m going to discuss the reallocations I have made since the beginning of October and explain the rationale for each move. This will give you an idea of my thought process as I utilize technical analysis to make reallocation decisions. I use numerous charts and technical indicators but, the S&P500 (C Fund) chart is always the default. The chart below is a great visual of when and why I made reallocations.
Going into the month of October I was allocated 100% G fund. On 11 October the C fund gapped up thru the 10DMA (blue line). This gap up put the odds in my favor that prices would continue higher. At that point, I decided to reallocate 60% into the stock funds and leave 40% in the G fund until the chart showed a follow-thru day. I got that follow-thru day on 31 October.
After 4 days of consolidation bumping up against the 3050 price level, the C fund broke higher on 31 October. This follow-thru validated the 11 October gap up and further increased the odds that prices would move higher.
14 and 17 November
By 14 November, the C fund has spent about a week consolidating just below the 3100 level. What you don’t see on this chart is that the I fund had rolled over. Based on a strong move lower on the I fund and overhead resistance at 3100 on the C fund, I reallocated to 100% G fund on Thursday, 14 November. The market immediately told me that I was wrong! The very next day the C fund jumped after finding support at the 10DMA. The next Alert came that Sunday when I reallocated back to the stock funds. (Technical Analysis is as much an art as a science! It does NOT always work.) I did not enjoy the 15 November gains but that’s not the point. The point is to interpret the charts, make adjustments, and keep moving forward.
The price trend remained in place and continued higher, following the 10DMA, until the beginning of December. On 02 December the C fund rolled over and closed below the 10DMA for the first time since the gap up in early October. This was potentially extremely significant! Just as the gap and close above the 10DMA began a new short term rally higher, a close below the 10DMA would LIKELY begin a short term decline. As this point I reallocated to 100% G fund.
Rather than continuing lower, this close below the 10DMA was a head-fake. 3 days later the C fund was back above the 10DMA but still below its prior high. On 12 December, after re-testing the 10DMA, the C fund broke out to new all-time highs! At that point, the odds of prices moving higher significantly increased. In addition, as you can see on the chart, the 3150 level was acting as resistance beginning 27 November. This resistance is now support. A close below 3150 would be a serious red flag to the rally.
Bottom Line: Hopefully this post gives you a sense of my thought process over the past several months. I DO NOT have a crystal ball. I study the charts and utilize technical indicators to make objective reallocation decisions. The market does not always move in my expected direction but, this reasoned approach enables me to adjust quickly and keep moving.
Have a great week!