The TSP stock funds continued higher this week with the C fund up 2.45%, S fund up 3.47%, I fund up 2.55%, and F fund up 0.06%. We are approaching the February all-time high on the C fund at 3400 and expect to see resistance at or near that level.
This week we will take a look at 2 examples of “V” shaped recoveries to manage expectations going forward…
S&P500 (C Fund) 1987 Crash and Recovery
The 1987 Crash might be the best, relatively recent, comparison to the early 2020 crash. In the 1987 crash, the S&P500 lost about 1/3 of its value. The S&P then began a “V” shaped recovery, taking about 20 months to get back to its previous all-time high. At that point, the price began a sideways consolidation that lasted about 15 months before a new up trend was finally confirmed. Today, as we approach 3400, the most recent all-time high, we should expect some type of consolidation/correction before prices are able to move higher long term.
S&P500 (C Fund) 2018 Correction and Recovery
The October to December 2018 correction is the most recent example of a “V” shaped recovery. We saw a double top (October 2018 and May 2019) then a significant correction. This is one example of what we could see over then next few months. Following this initial correction, the market consolidated sideways for several months before confirming a new up trend.
We can see 5 clear steps from the bottom in March 2020 to present. Ideally we would hit 3400 and then see an A-B-C correction down to about 3050. This would be a great set-up for the next major bull market.
Short Term Daily Charts
In the short term, the C fund is solidly above its 10DMA and approaching its all-time high. Volume has not been falling off (a bullish sign), RSI is very strong though MACD is flat. Prices could move higher from here but should hit SERIOUS resistance at 3400.
Like the C fund, the S fund is above its 10DMA and approaching its all-time high. The price could hit 1600 before a serious correction, ideally down to the 1375 level. Technical indicators support higher prices in the near term.
The I fund is hitting resistance at 64. The current pattern is a bullish triangle. A strong break above the 65 level would indicate a new up trend in the I fund. Unfortunately, the technical indicators do not support a breakout to the upside. We are watching the I fund closely…
Bottom Line: The charts support prices moving higher in the near term BUT, we are approaching some very important resistance! IF you are risk averse, reallocating some of your TSP dollars to the G and F funds, until the C fund gets past resistance at 3400, is not a bad strategy. IF you are more risk tolerant, remaining in the stock funds could result in more gains BUT, be very cautious…
With the upcoming election, schools opening / or not, CoVid on the rise, … volatility will likely increase SIGNIFICANTLY after Labor Day. Enjoy the remainder of the summer and be ready for September.
Have a great week!