Current Allocation: 50% C Fund, 50% G Fund.
It was a tough week for the TSP stock funds. The S&P500 (C fund) broke down clearly thru the short term trend line but may be finding support at the 50 Day Moving Average (DMA). The S fund finished off the lows for the week but is still in the middle of the channel and the I fund finished the week pretty much where it began.
There is a lot of uncertainty in the market right now. We have seen a big move up since the November election and we are currently only about 3% down from the all time highs. The questions is, does this pause turn into a major correction or just a pull back setting us up for new highs going forward? There is no way to answer this question for certain so caution is the name of the game. With 50% C fund and 50% G fund we are only 1/2 exposed to market risk. If the market consolidates and breaks to the upside, we will get back fully into the stock funds. If the market turns hard down, we will get out of the stock funds completely and into the safety of the G fund.
As I discussed in the Perspective blog post, I expect the current pause to be relatively short lived. I am looking for the market to make one final push going into the summer before we see a serious, protracted correction. I consider this the most likely scenario BUT, I could definitely be wrong. Now is not the time to be complacent. Now is the time to pay attention and act when the market decides which way it will go.
Looking at the short term C fund chart below, a case can be made for a continued move down from here or a bounce to the upside. The price chart clearly broke down thru the trend line but is now just above the 50DMA which often represents support. If the C fund can stay above the 50DMA then this pause will be just that, and we will be moving higher over the coming months. If we see a hard break down thru the 50DMA then the game has changed.
On a weekly basis, the TSP stock funds do not look great. On the C fund, the 2350 level was broken and the indicators appear to be turning down. The S fund looks even worse with the indicators already having turned negative. The S fund could easily come down to the lower channel line before moving higher again. The I fund is the only strong fund right now, continuing higher as the C andS have moved lower.
Now is the time to watch the market closely. We have made some big gains since the election so conserving those gains is the name of the game right now. Next week could be significant so, stay tuned…
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