Another volatile week ends with green across the board for the TSP funds. The C fund closed the week up 1.13%, S fund up 1.55%, I fund up 1.65%, and F fund up 1.50%. With the market in rally mode since the October low, FOMO is beginning to make a comeback.
The CNN Fear and Greed Index is sitting firmly in GREED at 63. The index is made up of 7 components. Currently two are Neutral, one Greed, three Extreme Greed, and one Extreme Fear. The extreme fear component is Junk Bond Demand. This is the difference in yield between Junk and Investment Grade Bonds; i.e. “Smart Money”. While the public is getting greedier by the week, the smart money is getting more fearful. It will be very interesting to see how this plays out.
This week I want to do a deep dive analysis of the C fund. I’ve broken this down into moving average analysis, trend line analysis, and Fibonacci analysis. The combination of the tools can really help us in determining a risk/reward scenario, lines in the sand, etc..
We’re going to look at 3 daily charts of the C fund. The first is Moving Average Analysis. Overlaying the price chart, we see the 200 Day Moving Average (DMA) in blue and the 20DMA in green.
On a long term basis, when price is above the 200DMA, the long term trend is up. When price is below the 200DMA, the long term trend is under pressure or down. Once price closed below the 200DMA line in January, the line acted as resistance throughout the year. IT’S NOT AN EXACT SCIENCE. During the March rally, price was above the 200DMA for several weeks before rolling over to new lows The summer rally completed right at the 200DMA, and price is back to that level now.
The second line is the 20DMA in green. This is the short term moving average line. We can see that price tends to find support above this line during rallies and resistance at this line during declines. Again, not an exact science.
As of Thursday’s close, price is above both the 20DMA and 200DMA. Given Wednesday’s big price move, this is a bullish chart! AND, it’s applying only one tool…
Next is the daily chart of the C fund with the long term trend line. Simply connect the major highs throughout 2022 to establish the trend line. Each time price got up to this line, on a daily basis, it reversed to new lows. Price is currently just below that trend line.
For a sustained rally to take hold, price MUST get above the down trend line. The history of 2022 tells us that price is likely to get rejected at this line and roll over to new lows. If it gets above this line, it’s bullish but we’re not there yet. Using this simple trend line analysis tool, the chart is bearish.
Finally, we have the same daily chart of the C fund with Fibonacci retracement levels over the price chart. Reversals tend to happen at Fibonacci retracement levels. The black lines show the retracement levels from the high in January to the October low. The green retracement levels are from the August high to the October low.
We can see that until the FED speech on Wednesday, price had recovered 61.8% of the loss from the August high (green), and 38% of the loss from the January high (black). After the FED meeting, the next test for price is the 50% retracement level from the January high and the 78.6% retracement level from the October low.
Analysis Bottom Line
What does the analysis of these 3 tools tell us? First, price is above both the 20DMA and 200DMA lines. This is bullish. Price needs to stay above these levels for the rally to continue. Second, price is bumping up against the down trend line. Price has not been above this line at all in 2022. IF price gets above this line it’s bullish but, we’re not there yet. For now, the trend line is acting as resistance which is bearish. Third, if price gets up to about 4150, it will hit resistance at both the .786 short term FIB line and the .50 long term FIB line. These are levels where price could roll over; bearish.
Taking the analysis of these 3 tools into account, and the fact that we are in a year long down trend, I want to see these resistance levels get taken out before getting aggressive in the stock funds. Until these levels are taken out, the bias is still to the bears.
The TSP Fund Charts
Last week we looked at both the weekly and daily charts of the TSP funds. If you are making reallocation decisions based on the weekly charts, you’ve been enjoying some nice gains! You now have some decisions to make. Each time price has hit the down trend line, on a weekly basis, it has rolled over to new lows. Price is at that point as of this week’s close. Either you reallocate to the G fund, which I did this week, or you wait to see if price can break through resistance. The decision is based on your personal risk tolerance. If price closes below the 20 Week Moving Average (WMA), it was rejected at the trend line. If price puts in a weekly close above the trend line, that’s very bullish.
The chart below is a little busy but incorporates all of the tools and the RSI and MACD indicators. Price is right on its 200DMA line and bumping up against the down trend line. Beyond that is resistance at the 50% retracement level of the entire bear market. This coincides with the length, in both price and time, of the summer rally. If price can get above the down trend line, it will hit major resistance at 4150ish. RSI and MACD are trending higher but, they are much weaker than during the summer rally.
The S fund is clearly much weaker than the C fund. The S fund topped out in November 2021 and was in a well established down trend until the June low. Since then, the S fund has moved in a sideways and is potentially establishing a long term horizontal consolidation pattern. This is the first time the S fund has tested its 200DMA since January 2022. A break above this line would be bullish but, the technical indicators look pretty weak relative to the summer rally.
The I fund is in rally mode! As we’ve discussed, this is primarily a currency issue and not an indication of fundamental strength of the underlying companies that make up the I fund. The U.S. Dollar has been in a down trend since October. When the dollar is declining, the price of the I fund goes up. IF/When the dollar begins to strengthen, the I fund will roll over.
In the mean time, the I fund is above its 200DMA for the first time in 2022! RSI and MACD are overbought but showing no signs of rolling over. There is upside resistance at the 50% Fibonacci retracement level at 68.50. If price can clear that, the next target is 71.76.
The F fund topped out way back in August 2020 and has been in an historic decline ever since. Price found a bottom in October 2022 and has recovered back to its previous low in June. The next upside resistance level is the down sloping 200DMA line at 101.58. The technical indicator look extremely strong for the F fund, indicating that price should continue higher; at least in the short term.
Technical analysis is both Art and Science. It would be great if price ALWAYS found support/resistance at moving average lines, trend lines, or Fibonacci levels. Unfortunately, that’s just not how it works. We combine all of the tolls to make a risk/reward reallocation decision. We want to be in the stock funds when the risk/reward is in our favor, and/or when there is a clear trend.
Right now, the price of the C fund is testing significant upside resistance. Throughout 2022, price has reversed at those resistance levels. Will price break through this time? If yes, I will re-evaluate in a hurry! If no, the G fund is the best place to be.
The S fund is very weak. The I fund is in rally mode but is dependent on a continued decline in the dollar. The F fund is also in rally mode but is extremely dependent on interest rates.
Taking all of this into consideration, I am very comfortable in the G fund. If resistance levels get taken out to the upside, I will re-evaluate. For now, the bias is to the downside.
Have a great week!