Happy Independence Day!

It was a mixed week for TSP investors. We saw a lot of strength in the C and F funds, a healthy pull back in the S fund, and the I fund on the brink of a serious problem (or a bottom?)… For the week, the C fund finished up 1.67%, S fund down 0.63%, I fund down 0.80% and F fund up 0.57%.

C Fund (S&P500) Sectors

The S&P500 (C fund) is made up of 11 sectors. The chart below is pulled from StockCharts.com and shows the weekly performance of each sector. By knowing which sectors are doing well, we know what is driving C fund prices higher. This week, most of the gains came from Tech, Health Care, Communications Services, and Consumer Discretionary. As long as the majority of these sectors are moving higher, the overall S&P500 index will continue higher. Price strength between the sectors can rotate. What’s important for us, as TSP investors, is more green than red on this slide.

Another way to use the data is to show the sector performance relative to the overall S&P500 index. As we would expect, the 4 sectors that had the majority of gains this week also out performed the index as a whole. All of the other sectors underperformed the index as a whole. This means that the 4 leading sectors are the main drivers, with Tech the most important.

IF the Tech sector were to roll over, and another sector did not step up to fill the gap, then the overall index would roll over. Watch the Tech index ETF (XLK); it’s driving the C fund right now…

Silver Cross Index

We’ve been doing a lot of work with the Silver Cross Index (SCI) over the past couple of weeks. It appears to be an extremely useful indicator for confirming relatively significant bottoms in the S&P500. Over the past 18 months, the SCI has turned up only 6 times. 4 out of the past 5 times the SCI has turned up, we began a protracted price advance. The 6th began at the end of June; a bullish sign for the C fund going forward.

The Daily Charts

The C fund chart is looking very strong. After finding support at the 50DMA in mid-June, the C fund has exploded higher. With the SCI turning positive and a positive MACD crossover, we should see price continue to advance from here.

The 2250 level has acted as resistance for the S fund since early February. After several attempts throughout the year, the S fund was finally able to break above 2250 last week. This week, price consolidated above 2250 and found support at the 10DMA. All indications are that this is a healthy consolidation after breaking thru major resistance.

We do need to see price continue higher from support. A daily close below the 10DMA would be a red flag. A daily close below the mid-June low would be my line in the sand.

The I fund is in a precarious position. The chart shows price struggling to maintain support above the 50DMA line but, we have see this before… In late January, early March and late March, we saw a similar chart pattern. In each instance, the 10DMA was declining toward the 50DMA but did not cross. The bottoms were confirmed when price regained the 10DMA. The I fund is in a similar position now. IF price gaps up next week, the I fund is in good shape. IF price gaps down next week, that would be a major red flag…

The I fund has the most potential right now. Support at the 50DMA and 20 on the Slow Stochastic indicator has identified a short term bottom each time over the past 8 months. A breakout next week would likely generate and Alert.

The F fund continues to drive higher. While all the mainstream financial media talks about inflation as a major concern for markets going forward, the bond market is doing the opposite. It is clear from the F fund chart that, for now, the market does NOT see inflation as an issue. Bond prices move inverse to bond yields. If interest rates go up because of inflation, bond yields would go up as well. This would push prices down and we are not seeing that.

Bottom Line

It’s an exciting time in the market! We have come a very long way since the low in March 2020. The CoVid recovery was driven by Tech, which took a break for much of 2021. With Tech now back in the driver’s seat, can the overall market power higher from here? The answer is yes! The market CAN absolutely power higher from here. It could also roll over…

There is no shortage of market “experts” that have well thought out and reasoned opinions as to market direction going forward. You can read as many expert bulls as expert bears… From our perspective, we don’t make reallocation decisions based on what we expect the market to do. We respond to what the market actually does.

Have a great week!

Jerry