Weekly Update: 31 May 2020

It was a big week for the TSP stock funds for several reasons.  In terms of price, all 3 stock funds and the F fund pushed higher.  For the week the C fund was up 3.01%, S fund up 3.52%, I fund up 4.72%, and F fund up 0.18%.  It’s always great to see prices move higher.  What’s even better is to see prices break through key resistance levels, where that resistance becomes support.  That’s what we saw this week on the S&P500 (C Fund).  We’ll get to the daily charts in a minute.  First, let’s take a look at a Ratio chart that could be really helpful in identifying early changes in the trend.

We talked about ratios on the Weekly Update Show last weekend.  If you haven’t seen the show, check it out on Sunday night at 6:30PM EST.  We discuss what happened in the market this week, look at some charts, and talk through concerns and opportunities going forward.  Join us on Sunday, streaming live from the Face Book page!

Below is a 3 year weekly chart of the ratio between the Consumer Staple Index and the Nasdaq Composite Index.  In the background (light blue) is the price chart of the S&P500.  Ok, I know this looks complicated.  Try to keep your eyes from rolling back in your head and stay with me.  The concept of why the chart works is simple and will absolutely make sense…

Consumer staples are things like food, household goods, hygiene products, tobacco and alcohol.  Basically things that people buy regardless of the circumstances.  Companies that make these products tend to do well when investors believe the market is too risky.  They reallocate from risky assets like Technology into safer assets like Consumer Staples.  The Nasdaq Composite Index (NASDAQ) is a tech heavy index.  It can be extremely volatile and tends to move opposite to Consumer Staples.  It makes intuitive sense that when investors are nervous, they tend toward companies that are safe and away from companies that are risky.  We see this mindset play out over time in the chart.  The price of the ratio goes up as fear in the market goes up and, the price goes down as fear in the market goes down.  By overlaying the ratio chart on top of the C fund chart, we can see that highs/lows in the ratio price often lead highs/lows in the C fund chart.  This can be EXTREMELY helpful as we attempt to identify a change in the trend. 

The ratio is now at the same level as May 2018.  When the price started to rise off of the May 2018 low, it gave an early warning of the coming collapse in the price of the C fund in September 2018.  Keep an eye on this chart!  

C Fund

The S&P500 (C fund) had an extremely productive week from a technical perspective.  On Tuesday the market gapped up, clearing the 2950 resistance level and closing above the 200 Day Moving Average (DMA).  The market held those gains through the week with a positive reversal off the 200DMA on Friday.  We want to see a strong follow-through day within the next 2 weeks and the 10DMA line cross up thru the 200DMA.  This would be an extremely bullish signal!  We’ll see…

S Fund

The S fund is in the middle of a well defined channel.  As long as the S fund remains in this channel, it’s in good shape.

I Fund

The I fund broke out on Tuesday, clearing resistance at 58 on big volume.  This is a bullish sign indicating that prices should move higher from here.

F Fund

The F fund consolidated back to support at its 10DMA.  With Friday’s positive move, we should expect to see normal, incremental price increases from here.  The F fund is affected mostly by changes in the interest rate.  As rates continue to decline, the price of the F fund will continue to rise.   

Bottom Line:  The charts look very strong.  The next major resistance is the prior highs (3400 on the S&P500).  A 12% gain from here puts us back to the pre-Covid highs.  It’s amazing to me that we are closing in on the prior highs given 40 Million people out of work, major civil unrest in the U.S. and Hong Kong, etc…  The economy, world events, and the stock market are clearly out of sync.  Watch the charts!  The news is NOT helpful in making reallocation decisions.

Have a great week!

Jerry