Sunday Update: 100% G Fund Until Further Notice

What started off as a lazy first week of summer trade finished with a surprise implosion…  BREXIT (British Exit from the European Union) had been a possibility for months but when the vote was counted on Thursday, the unthinkable happened; a majority of the British voting population voted to exit the EU.

A quick Google search or any of the news outlets can get you up to speed, if you have not been following this.  The big question, that cannot be answered in advance, is what will happen to the UK, EU, US, and World Economy in the aftermath of BREXIT.

Short Term

The short term picture is obviously not good.  All 3 stock funds tanked on Friday, with the I fund taking the biggest hit as we would expect.  The S&P500 (C Fund) crashed thru the 50DMA, closing at the lowest levels of the day.  The C fund now sits at the same price level as late March, approximately 2040.  The next area of resistance is the 200DMA but I do not expect that to hold.  I would be prepared to test 1800 again before we ever see 2150.

20160626Cfund6moDaily

Long Term

The long term charts look a bit better than the short term chart only because the C and S charts look like they found support at the 50WMA.  Unfortunately, any possible support is overshadowed by some very negative technicals.  On all 3 charts, the Slow Stochastic, MACD and Divergence have all rolled over.  On a 2 year weekly chart, this is not a good sign.  Also, on all 3 charts, last week’s price range engulfed the range of the previous week and finished at the bottom of the weekly trading range; a very bad sign.  It’s very likely that we will see the 200WMA tested on the C and S funds within the next several weeks.

The I fund is already well below both its 50WMA and 200WMA.  I expect we’ll see the I fund in the 40s before long.  As a point of reference, the I fund should find some support at the 47 level (the lows of 2010,2011 and 2012).  If the I fund gets below 45, the next support level is around 30, the low in 2009.

20160626Cfund2yrWeekly

20160626Sfund2YrWeekly

20160626Ifund2yrWeekly

Bottom Line

There is basically nothing optimistic in either the short or long term charts right now.  Only one thing is practically guaranteed, there will be A LOT of volatility over the next few weeks.  I would expect to see some BIG moves up in price (likely on relatively low volume) and BIG moves down (likely on relatively high volume).  This environment is great if you trade stocks for a living.  People will make/lose a ton of money on both big up and down days.

As TSP investors, having moved to 100% G fund before BREXIT, we want to sit tight and wait for the markets to stabilize before making and changes.  We are living in exciting times!  Have a great week!

– Jerry