Weekly TSP Newsletter: 10 October 2021

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The market stabilized a bit this week but, some funds are clearly doing better than others. For the week the C fund ended up 0.79%, S fund up 0.03%, I fund down 0.28%, and F fund down 0.76%.

In this post we’ll take a look at 2 of the topics we covered more generally in the TSP Weekly Update Show, then take a close look at all 4 TSP fund charts.

Random Stock Picking

A good friend of the show forwarded a funny but pertinent article via MorningBrew.com.

Mr. Goxx is a stock picking hamster. His job was to select a portfolio from the universe of Crypto assets that would out perform the market. The results were spectacular! The portfolio that Mr. Goxx assembled is up 20% since June, outperforming the S&P500, Warren Buffett, and BitCoin! Should we all start following Mr. Goxx and his portfolio?? Better to follow the methodology of Investors Business Daily (IBD)…

Below is the universe from which Mr. Goss selected the assets in his portfolio. As you can see, the crypto sector in general has done extremely well in the past 90 days. Any random selection of these assets would form a portfolio that out-performed Warren Buffett or the S&P500. The point is not the assets picked but the performance of the overall sector from which the assets were selected.

The IBD methodology for selecting great stocks to assemble a strong portfolio begins with the Market Pulse. Market Pulse tells us whether the overall market is in a Confirmed Up-Trend, Market Under Pressure, or Market in Correction. From there, IBD ranks the Sectors of the overall market against each other to determine which sectors are out-performing the others. Finally, investors select stocks from the best sectors to create a portfolio. Following this methodology enables us to create a personal stock portfolio that SHOULD greatly out-perform the market as a whole.

Mr. Goxx was so successful because he was limited to selections from a Sector that performed extremely well. Had his choices come from the Industrials or Materials sectors, his results would have been pretty lousy…

V Bottom vs Rounded Bottom

We covered several bottoming patterns in the TSP Weekly Update Show. Here I want to focus on the 2 patterns that we see in the 4 month weekly chart of the C fund below; the V and Rounded bottom patterns.

We have seen the market find support at the 50DMA, and recover to new highs, throughout 2021. Historically, we have seen these recoveries play out in V patterns. Price would come down, hit the 50DMA and immediately reverse. In the most recent bottom, we see a more rounded pattern take shape. A rounded bottom shows us where falling prices begin to tapper off, consolidate, and begin to move higher. A rounded bottom is a much more tradable pattern than a V bottom. For us, Thursday’s gap up from this rounded bottom gave us our first opportunity to ease back into the stock funds. This does NOT mean the coast is clear to move to 100% stock funds! We need to see a follow thru day for that, with support above the 50DMA.

The TSP Fund Charts

The C fund put in a bottom last Monday, stabilized, and then gapped up above its 10DMA on Thursday. Price hit resistance at the 50DMA and reversed but, maintained much of the days gains. Friday was a mild down day on low volume. This is exactly what we want to see on down days during a new rally attempt. We want big volume on up-days and low volume on down-days. Ideally, price stays above its 10DMA and breaks out above its 50DMA sometime this week. A close below the short term support level of 4275 means that the 4 leg is not yet complete and prices would likely move lower.

The S fund had 4 days of support at its 200DMA line before gapping up on Thursday. Like the C fund, the S fund hit resistance at its 50DMA but closed the week above its 10DMA. We really want to see a follow thru day on the S fund next week to confirm this new rally attempt.

The I fund is the worst of the TSP stock fund charts. We saw big volume selling since the top in early September. On Wednesday, the I fund gapped down well below its 200DMA but reversed and closed right on it. Price could not get back above its 10DMA to close the week. We really want to see some strength in the I fund this week.

The F fund is basically in free-fall. After several days of attempted support at the 200DMA, that support has clearly failed. The F fund is not a good alternative to the stock funds at this point.

Bottom Line

The market is attempting to find A bottom here. Whether or not this is the final bottom of the 4 leg will be revealed in the coming days. We need to see the C and S funds get back above their respective 50DMA lines. Price action late this week was encouraging but, we need to see some confirmation this week. A C fund close below 4275 would be a serious problem for this new rally attempt!

Have a great week!

Jerry