It was a MONSTER week for the TSP stock funds, topped off with Friday’s C fund gain of 2.62% on huge volume! For the week the C fund was up 4.91%, S fund up 7.22%, I fund up 7.01%, and F fund down 0.46%.
As you can see in the 3 year weekly chart of the C fund below, this week’s gains were on par with the best weeks since the 23 March bottom. The C fund has exploded 45% off the March bottom and currently sits just over 6% from its All Time High! It has clearly been a “V” shaped recovery for the stock market, if not for the overall economy… The question for us is, given such a strong recovery and proximity to new highs, how do we maximize gains and minimize downside risk going forward?
If you’ve been following these posts for some time, you know that we really try to avoid the allure of the “Crystal Ball”. The market has come a LONG way since late March. It will correct at some point but, it could continue much higher before any correction. To manage risk effectively, you need to look at the current price with respect to support and resistance levels. After three consecutive positive weeks, the C fund is extended 11% beyond its 10WMA (Week Moving Average). Price is approaching resistance at the prior high. These two factors set the price up for limited potential gains vs significant downside risk. To be clear, I’m not calling for a top here. What I am saying is that the downside risk (currently 11%) needs to be considered versus potential continued gains as we approach the prior highs.
From a daily perspective, the C fund is hitting resistance at 3200 and is 4.3% above support at its 10DMA. We would consider 4.3% extremely extended above the 10DMA.
The S fund enjoyed a huge gap higher on Friday but reversed and closed at the bottom of its trading range. The price is currently 5.5% above support at its 10DMA. Given Friday’s reversal just below the resistance zone, I would not be surprised to see the S fund correct back to its 10DMA over the next several days.
Like the S fund, the I fund enjoyed a big gap up and subsequent reversal on Friday. While the I fund has further upside before hitting its resistance zone, it is more than 5% above support at its 10DMA.
Bottom Line: All three TSP stock funds have had HUGE runs since late March. Their prices are now extremely extended, on both a daily and weekly basis, versus their shortest term moving averages. IF you are risk averse, you might consider locking in some of these gains.
Have a great week!