Weekly Update: 22 November 2020

We saw a low volume, mixed week for the TSP stock funds. The C fund ended the week down 0.77%, S fund up 3.46, I fund up 1.41, and the F fund up 0.55. This week we will take a look at the 6 month daily charts of the TSP stock funds and also the Dow Jones Industrial Average (DOW) and the Nasdaq Composite Index (Nasdaq). First, let’s get a little wider perspective with a 1 year weekly chart of the S&P500 (C Fund)

Long Term

The 1 year weekly chart gives us a view of the forest without so many trees, versus the daily charts. In the chart below we can see that 3500 is an important level. From late August thru early November, price could not close above 3500 on a weekly basis. Finally last week, price gapped above 3500 and ended the week where it began, just under 3600. While the C fund finished a bit lower this week, it is clearly out of the longer term consolidation pattern. A weekly close below 3500 would be a problem.

Short Term

The daily charts get a bit more busy and complicated; meaning more potential options for making reallocation decisions. We could only focus on the 3 TSP stock fund charts. Adding in the DOW and NASDAQ charts gives us a bigger view of the direction of the broader U.S. market.

The Dow Jones Industrial Average is the oldest index in the U.S. It is a price-weighted index of 30 big companies in the Industrials sector. In the chart below, we can see that the DOW was in a down trending consolidation during September and October. In early November, price gapped up above both previous highs. This created a support level at 2900. Ideally, price would not close below 2900 on a daily basis. Worst case, price fills the gap from early November, pulling back to 28500 before continuing higher.

The Nasdaq is the primary tech index in the U.S. The Nasdaq led the charge since the March 2020 lows, until we saw a rotation in sectors in November. As a result, while the DOW and S&P500 have made recent new highs, the Nasdaq has not. Because the Nasdaq is so important in the overall direction of the market, we want to see price exceed 12000 to confirm the next leg higher in this rally.

The S&P500 (C fund) chart is similar to the DOW. 3550 is an important support/resistance level on a daily basis. A daily close below 3550 would also be clearly below the 10DMA. In this case, the next support level would be the 50DMA (approximately 3% lower).

The S fund is the most extended of the stock funds. As we discussed last week, the S fund chart, with higher highs and higher lows, is in a very clear up trend. Having said that, price is extended quite a bit beyond its 10 and 50 Day Moving Averages. The further price gets extended above the moving average lines, the more market risk exists in terms of reallocation decisions. We have had made some nice gains with the S funds in November. Depending on your risk tolerance, you could consider moving some from S to G and waiting for a pull back on the S fund.

The I Fund made a huge move in November and is now consolidating above its 10DMA. Price sits over 7% above its 50DMA and 1.3% above its 10DMA. A daily close below the 10DMA would push me to the G fund in the short term. I would expect to reallocate back into the G fund at the 50DMA or the 66 level.

Bottom Line: The ability to see the market from several time frames is critical. In this case, the 1 year weekly chart of the C fund tells us to expect support at 3500, worst case. The daily charts of the DOW and S&P500 give us clear support lines, while the S and I funds are extremely over extended from any reasonable support level. Additionally, the Nasdaq is banging up against resistance at 12000.

I am watching all of this closely while taking into account the significant gains we have made since the first Alert in November. We have 5 trading days left in the month and it’s Thanksgiving week; historically a positive week for the market. I’m definitely bullish in the medium to long term but, the short term is a different story. I need to let it play out for another day…

Have a great week and a very Happy Thanksgiving!

Jerry