We just finished the 4th consecutive week of big gains for the TSP stock funds! For the week, the C fund was up 2.87%, the S fund up 2.77%, and the I fund up 1.72%. So far we have seen a “V” bottom off of the C fund’s 200WMA (Week Moving Average). Can prices just keep going on to new highs? How much higher are prices likely to go before rolling over? Shouldn’t I be in the stock funds now?… These are just a few of the questions I’ve been getting pretty consistently over the past couple of weeks. It’s very tough to sit in the G fund when the stock funds are moving higher. The problem is, all 3 TSP stock funds are butting up against major resistance. They need to pull back and stabilize before a sustained rally can be identified.
The chart below shows the S&P500 (C fund) over 15 years, weekly. We can see that the 50WMA and the 200WMA are significant support and resistance levels. When the market is rising, these levels act as support. When the market is falling, these levels act as resistance. The last time the 200WMA was broken to the downside was 2008. Once that level was violated, prices collapsed by 50% before finding a bottom!
We have 3 possibilities going forward as markets alway go either up, down, or sideways. First, the December bounce off the 200WMA was the end of this correction and we will continue to higher highs. Second, prices will find resistance at the 50WMA, roll over, and violate the 200WMA to the downside. Finally, prices could stabilize between the 50/200WMA lines before moving definitively in one direction or the other. No one has a crystal ball but, knowing the possibilities sets you light years ahead of making decisions based on hope, fear, or water-cooler talk…
The market has not yet displayed a long term trend change. Until that happens, we are in a bit of no-mans-land. Until the question of trend is answered, there is market risk both in terms of actual loss and potential gain. Whether or not you are invested in the stock funds right now depends on your personal risk tolerance. This video sums up my thoughts exactly and explains why being fully invested in the stock funds right now is very dangerous. If you didn’t get to see it last weekend, it’s well worth 40 min of your Sunday!
Have a great week!