Sunday Update: 26 January 2020

It was the first weekly loss for the TSP stock funds in 2020.  While jarring, especially Friday’s losses, the news is not all bad.  While all 3 stock funds were down for the week, none finished below last week’s low.  On a WEEKLY BASIS, the up trend is still in place.  As we drill down, there is absolutely a break in the trend on a daily and intra-day basis.  

In this post, we will look at the two very long term possibilities and the medium and short term charts.  Depending on your personal risk tolerance and how closely you watch the market, you may want to lock in some of the gains we’ve seen since October 2019 or let it ride a bit longer.

For the week the C fund was down 1.03%, S fund down 1.28%, I fund down 1.26% and F fund up 0.65%.

Very Long Term 

Possibility #1 is the bullish case.  We are certainly at or very close to a top.  In the bullish case, we are at or close to the top of leg 3 in the larger leg V.  IF the scenario plays out, leg 4 will be a relatively mild consolidation followed by a final leg higher to complete 5 and V.  Leg 4 would ideally bottom out around the 3200 level and then move sharply higher.  It could take several months for leg 4 to play out and volatility will likely be significant.  The key will be a relatively flat consolidation (i.e.. no major crash). 

Possibility #2 is the bearish case.  In this scenario, we are at or close to the top of leg V.  In the bullish case, leg V is made up of 5 sub legs.  While this is a common pattern, it is not required.  The ONLY rule for leg V is that it exceeds leg III which has already happened.  In this scenario, we are at or very close to a major top; the end of the rally that began in 2009.  IF the next  decline is significant, i.e. a fast crash taking prices down initially to 3000 or lower, then possibility #2 is likely in play.   

Medium Term

The medium term chart is still very positive.  The market has moved significantly higher since October 2019 with only 3 down weeks in the past 16 weeks.  As you can see in the 6 month weekly chart of the C fund below, the weekly trend is still in place.  Importantly, this week’s price range was within last week’s price range and volume was relatively light.  On a weekly basis, the market took a much needed breather in its consistent push higher.  

Short Term

In the short term (daily) perspective, all of the TSP stock funds closed last week below their respective 10DMA (Day Moving Average).  Since October 2019 all 3 stock funds have been riding their 10DMA line higher.  There have been very few daily closes below the 10DMA, followed quickly by rallies back above the line.  Having said that, the May, August, and September corrections we saw in 2019 were initiated by a daily close below the 10DMA line.  In each of these corrections, once the 10DMA was violated, prices move lower quickly.  IF this is the beginning of a significant correction, we could easily see prices down to the 50DMA (about 3200) by the end of next week.   

Bottom Line:  This week rattled the markets a bit.  There is definitely reason to be concerned BUT, the weekly trend is still in place.  IF you are fully invested in the stock funds, you should be paying very close attention…  

Ps.  I don’t utilize the F fund very often as it does not correlate to the stock funds.  Right now however, the F fund has just broken out of a several month long triangle consolidation.  From a technical perspective, this is an excellent time to buy into the F fund.  The F fund is more volatile (riskier) than the G fund but much less than the stock funds.  Because of its recent breakout, the F fund is a good alternative to the G fund while waiting for the stock funds to correct.

Have a great week!

Jerry