Weekly TSP Newsletter: 26 June 2022

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What a difference a week makes! Last week we saw the worst price action in the market since the throws of Covid and there was no bottom in sight! This week, the market stages a very strong rally where everything ended in GREEN. Is the bottom in? Is it time to reallocate to the stock funds?…

For the week the C fund ended higher by 6.46%, S fund up 6.77%, I fund up 3.74%, F fund up 0.71% and the G fund up 0.058. It’s very hard to look at these gains and not wish we were in the stock funds to capture them. Given the TSP noon rule, could we have used different analysis and actually got some of these gains? Let’s take a look…

Intra-day Charts

The chart below shows each of the 5 trading days last week where each tick is 5 minutes. The market opened Monday morning and rolled over to test Friday’s lows. It then recovered a bit and gapped up on Tuesday. By 11AM on Tuesday, price leveled out and put in a sideways channel from Tuesday through Thursday. Most of the weekly gains came on Friday’s gap up and 3% move higher.

Using our current stack of technical indicators, if we were DAY TRADING, we saw the breakout on Thursday, a little after 2PM. Price was above the moving average line, RSI crossed above 50, CCI was already above 100, and MACD had turned positive at about 1:30 that day. If we had reallocated to the stock funds at 2PM on Thursday based on this breakout, it’s after noon so we would have got Friday’s closing price. We would NOT have got Friday’s gains.

But that’s not the whole story. If we look at the chart again, we see that our current stack gave us DAY TRADING buy signals 6 times last week! 5 of the 6 signals failed. The point is, we cannot day trade our TSP. Even if we could, making money last week was very difficult.

Why did we get the gap up on Friday? If you read the financial media on Thursday afternoon and Friday, you couldn’t help but too see a ton of articles about how investors (all of a sudden) believe the FED will actually cut interest rates in 2023-2024.

“After amping up wagers on steeper Federal Reserve hikes, traders are now turning to when the US central bank will need to cut — and piling in just as aggressively.  

Three quarter-points of cuts are expected within two years — the most since before the global financial crisis — even as money markets rush to bet on an unprecedented 75-basis-point increase this month and next, with further tightening to follow.” – Bloomberg.

This is the kind of news that drives short term recovery rallies. It is not the kind of news that signifies a final bottom to this Bear Market.

The TSP Fund Charts

We have 4 triggers on the daily charts before reallocating back into the stock funds. First, price has to be above the 20DMA line. Second, RSI must be rising and above 50. Third, CCI must be rising and above 0. Fourth, MACD must turn positive. We also want to see divergence between price and RSI/CCI.

In the C fund chart below, price is barely above the 20DMA line. The other 3 indicators are close but have not triggered. We also do not have any divergence between price and RSI or CCI on this daily chart like we saw leading into the March and May rallies. Circumstances could change this week but, there is no buy signal as of Friday’s close.

We have the exact same set up on the S fund. No buy signal.

The I fund had a huge move on Friday but, is further from a buy signal than the C or S funds.

The F fund reversed and closed below its 20DMA line on Friday. Any hint of the FED easing on rates will send the F fund higher. I’m watching closely for that but, right now, no buy signal.

Bottom Line

It’s tough to sit out these rallies but, TSP investing is a marathon. We want to be on the right side of the market. That means being in the stock funds when the odds are in our favor of a continued higher trend. We just don’t have that yet.

This week is the last week of Q2 2022. There will be significant volatility as institutions, hedge funds, and pension plans perform quarterly rebalancing. We are also going into the 4th of July holiday weekend. Markets could move significantly in one direction or the other!

Have a great week!

Jerry