Weekly Update: 17 May 2020

The monster rally that we have seen since the 23 March bottom seems to be pausing.  Is the market taking a breather (consolidation) before another move higher?  Will the TSP funds roll over from here, possibly testing the March lows or lower??  No one can answer those questions!  No one has a crystal ball!  What we can do is look at support/resistance levels and make informed decisions based on what the market tells us to do.  For the week, the C fund was down 2.26%, S fund down 4.44%, I fund down 2.96% and F fund positive by 0.49%.    

This week we’ll look at the weekly charts of the stock funds and take a deep dive into the F fund.  First, let’s look at how we know this rally is pausing… 

The 5 month daily chart of the C fund below gives us a ton of information and paints a clear short term picture.  The C fund bottomed on 23 March, ran up to the 38% retracement level, then corrected back to its 10DMA.  It then rode the 10DMA up to the 62% retracement level before pausing.  We currently have a double top at 2940 with the price sitting below a downward sloping 10DMA line.  With resistance at 2940 and downward pressure from the 200DMA (red line), it will be tough for prices to rally significantly higher from here.  The 50DMA (green line) could provide support but, a close below the 50DMA would confirm the end of this rally.  A close above the 200DMA would push me back into the stock funds. 

Long Term (Weekly) View

The weekly TSP stock fund charts all look similar.  All three bottomed on 23 March and have recovered significantly from their lows.  With the rally pausing, all 3 stock funds have different support/resistance characteristics that will shape our expectations and possible reallocation decisions.

The C fund was extremely volatile this week.  It’s intra-week high was higher than last week’s high, while its intra-week low was lower than last week’s low.  The price did not get down to its 10WMA this week so, the reversal was not at an identified support level.  If prices move lower from here, the 10WMA is the first significant support level.

The S fund still has not filled the gap between 1300 and 1350.  The gap does not need to be filled but, a great negative reversal area would be 1350 on the S fund.  It will be very tough for prices to push past that level.

The I fund has not recovered as much as the C and S funds and is having a tough time staying above the 56 level (resistance from December 2018).  The I fund is riding its 10WMA but, given the downward slope, the price can continue lower while remaining above the 10WMA for some time.  Technical indicators appear to be rolling over… I wouldn’t be selling the I fund right now but, I wouldn’t buy it either.

F Fund

The 5 month daily chart of the F fund looks much different than the daily chart of the C fund that began this post.  The F fund collapsed in an A-B-C pattern in March, bottoming out a couple of days before the stock funds.  The F fund quickly recovered almost all of its losses and has been in a tight consolidation for the past 5 weeks.  This chart actually looks very strong with up days Thursday and Friday, relatively strong volume, and technical indicators turning up.   We COULD be witnessing the beginning of a breakout on the F fund.  A close above 117.40 ON BIG VOLUME would confirm a breakout.  A close below 116.00 would indicate prices are moving lower.

Closing Thoughts (ie what’s keeping me awake at night…)

There has been a lot of talk about Negative Interest Rates over the past 3 months and specifically this week.  The Chairman of the FED announced a series of new steps this week attempting to shore up the economy.  He did not close the door on negative interest rates.  This gets very complicated but, the chart below really simplifies it for us in terms of the F fund.  The F fund is the Aggregate Bond Index.  As yields on bonds decrease, the price of the bond increases.  The math does not change if the yield goes negative.  As you can see in the chart below, as the yield decreases the price increases.  This fully supports the possibility of F fund prices going higher in the near term.  

The big question on my mind is, what happens to the G fund in a negative interest rate environment… On the one hand, the G fund cannot have a negative quarter by statute.  On the other hand, if interest rates go negative, the rate of return on the G fund would also go negative.  Both of these conditions cannot exist at the same time without the government filling the gap to keep the G fund at/above zero.  Things are going to get very interesting…  

Bottom Line: The rally appears to be pausing.  In the short term, the only way I would reallocate to the stock funds is if the C fund were to close above its 200DMA.  Reallocating to the F fund is a tactical decision which, as you can see from the chart, is not without risk.  Avoiding risk (staying in the G fund) is also getting more costly as falling interest rates drive the G fund rate of return down.  Something is going to have to give…  I’m not going to anticipate.  I will let the market tell me what to do next!

Have a great week!

Jerry