Sunday Update: 19 April 2020

It was another positive week for the TSP stock funds. In fact, we just strung together the best 2 week performance since the 1930s!… For the week the C fund was up 3.04%, S fund up 0.91%, and I fund up 0.31%. If we look closely at this week’s price movement, the C fund was almost flat for the week until Friday’s 2.68% pop. However, each day this week, the price finished at or near the top of it’s daily trading range. It was a very strong consolidation week. So where does that leave us? Does the market move higher from here or is it getting ready to roll over?…

We are going to look at 3 charts. First we’ll compare last week’s chart of the C fund with this week to see how the price and technical indicators have changed. Because the C fund mostly consolidated this week, the resistance zone is tightening. IF price finds support above this zone, market risk will decrease significantly and adding to stock positions makes sense. IF the price rolls over, market risk is high and the G fund makes sense.

Second, we’ll look at a very basic reallocation strategy that will take all the emotion out of trading in this Bear Market while keeping us on the right side of the trend… I have received a TON of questions this week about getting back/more into the stock funds. This chart will give you a very simple and straight forward answer to that question.

Last Week Vs. This Week

Below is last weekend’s Sunday Update C fund chart. What I saw was a lot of overhead resistance between 2892 and 3016, with no support until the 10DMA. From last week’s closing price of 2801, the potential upside was 3.5%-4.5%. The risk (potential loss from 2801 to the 10DMA) was about 7%. With my allocation of 70% G fund and 30% C fund, I was happy with both the upside and downside risk as of last week.

Below is this week’s C fund chart. Because the price mostly consolidated, the moving average lines began to converge. Friday’s closing price was right on the 50DMA and very close to point D (2892). At the current weekly closing price of 2874, we are virtually at the center of the resistance zone. Upside potential is limited until we get real support above the 50DMA. However, the downside risk has decreased as the 10DMA has risen. Current downside risk (from 2874 to the 10DMA) is about 4.5%.

For me, managing my TSP account is all about balancing risk vs reward. I try my best to keep emotion, FOMO, fear of losses, etc.. out of the equation. Next week we could see the 10DMA cross up through the 50DMA and price support. Alternatively, we could see resistance and a roll over here at the 50DMA. I want to see support above the 50DMA before I increase my stock fund holdings. That’s based on MY personal risk tolerance. Your risk tolerance could certainly be different! Most importantly, regardless of what you decide, your downside risk is about 4.5% (current price down to the 10DMA).

One Simple Trading Method

Don’t want to get too into the weeds with all of this technical analysis? Looking for a simple but active way to make reallocation decisions? Here’s one easy method that will keep you on the right side of the trend, more often than not, given trading restrictions of the TSP.

In the 6 month chart of the C fund below, each dot represents the daily closing price. The blue line is the 10DMA. When the dot is above the 10DMA be in the stock funds. When the dot is below the 10DMA be in the G fund. When the dot is touching the line, give it one more day… Apply this system to the chart below and see where your reallocations would be. You can build this chart yourself (for FREE) at StockCharts.com.

The jury is still out on whether or not we are beginning a new Bull Market.  We will find out soon enough!  In the meantime, I would highly recommend focusing on resistance/support, risk/reward, and your personal risk tolerance.  Try to avoid people offering their crystal ball…

Have a great week!

Jerry