It was a very strong week for the TSP stock funds. After falling over 2% last week the stock funds recovered nicely this week, finding support at important moving average lines. For the week the C fund was up 1.2%, S fund up 1.82%, I fund up 0.86%, and the F fund up 0.41%.
As of Friday, the 50 Day Moving Average (DMA) line is just about to cross up thru the 200 Day Moving Average (DMA) line. This event is know as the “Golden Cross”. It is USUALLY a very bullish sign for the market going forward. We’re going to look at that as we compare the current correction to the last major correction, 2015-2016.
Comparing Corrections and Golden Crosses
Below is the 1 year daily chart of the C fund. You can see that the blue line (50DMA) is just about to cross up thru the red line (200DMA). This is known as a “Golden Cross”. Often times a Golden Cross is an indication that a correction is over and stocks are ready to move higher for a significant amount of time. This is a very bullish indicator BUT, it’s not 100% accurate.
While it would be nice to sit back and assume this correction is over, it’s not quite that easy… Let’s compare the current chart with the correction of 2015-2016.
From August to October 2015 the C fund corrected about 14%. The market rallied back strongly by the beginning of November 2015 but was unable to make new highs. While there was a Golden Cross event in December 2015, the down trending price consolidation made this event suspect. In fact, the market collapsed within days and ultimately made significantly lower lows by February 2016.
Major consolidations never happen the same way twice but, there are always similarities. The market is looking strong right now but we could have said the same thing in December 2015, right before the collapse to new lows. WE ARE NOT OUT OF THE WOODS YET! We need to see a WEEKLY close above the October highs before the current correction is fully behind us.
The 2 year weekly chart of the C fund below shows some pretty solid support at the 50WMA line. The curve has turned, is moving higher, and all technical indicators are moving up. As long as the weekly closing prices stay north of this line, the stock funds are the place to be.
The S fund had a very constructive week, consolidating at its 50DMA and gapping up thru its 200DMA on Friday. If we can clear the 1400 level next week, the S fund should be ready to test the prior highs at 1500.
The I fund found support at its 200DMA this week and popped higher on Friday. The technical indicators have not turned up. We want to see the technicals move up and support at the 200DMA to hold next week.
Bottom Line: The market looks pretty good right now but, we must remain vigilant. We are not out of the woods yet…
Have a great week!