It was a pretty exciting week if you’re a technical analysis geek 🙂 Beginning Wednesday we were watching the market very closely for a potential Alert, out of the stock funds and into the safety of the G fund. We didn’t get there this week but, we’ll explain the thought process in this post. For the week the C fund was down 0.96%, S fund up 0.69%, I fund down 0.50%, and the F fund up 0.37%.

Wednesday

On Wednesday, the C fund gave us a “Bearish Engulfing Candlestick” pattern. This can be seen in the chart below where the price range on Wednesday completely engulfs the price range from Tuesday and closes below Tuesday’s close. We also saw an increase in volume versus Tuesday and technical indicators beginning to roll over. That’s the bad news… The good news is that price found support at the 10DMA (Day Moving Average) on Wednesday. Taken together, it was NOT clear on Wednesday that the market would likely move lower. We decided not to post an Alert and give more time for the pattern to play out.

Thursday

On Thursday we saw continued weakness in the C fund which did spend much of the day below its 10DMA. By the close, price was just below the 10DMA and the MACD lines had crossed to the downside. The dotted black line below shows a method of making buy/sell decisions that is very effective. When price drops below the 10DMA and the technical indicators all turn negative on the same day, it’s time to sell. However, we also have to look at the other 2 TSP stock funds AND take into consideration the 2 move per month rule…

While the C fund gave us a pretty clear sell signal, the S fund did just the opposite! The S fund opened on its 10DMA and exploded higher throughout the day, closing at the top of the days trading range. This was a very bullish day for the S fund. The technical indicators look great in the chart below. There is no reason to sell the S fund when looking at this chart.

Similar to the S fund, the I fund opened on its 10DMA and rallied higher for most of the day. While it did not finish at the top of the days trading range, it closed well above the 10DMA on relatively big volume. Technical indicators have turned negative but are NOT rolling over very hard at this point; an indication of consolidation vs correction.

Friday

We were VERY close to posting an Alert on Friday morning. You can’t see it in the chart below but, price didn’t get below Thursday’s low until just before noon. That lower low was a serious problem BUT, by the end of the day, the C fund had rallied back to the top of the days trading range and closed right on the 10DMA again! This is a great example of the difficulty in making TSP decisions by noon to get that day’s closing price.

The S fund hovered around the 1900 level throughout the day, closing just about where it opened. The S fund is above its 10DMA, with RSI and MACD still looking good. This is classic, healthy consolidation price action. While we have seen some fast gains in the S fund since the beginning of November, it does not look ready to roll over just yet. A consolidation along the 10DMA CAN set us up for the next run higher.

While it was a down day, the I fund tested its 10DMA and closed above it. Volume was lower for the day and the technical indicators, while down, have not rolled over hard. Again, very consistent with consolidation vs correction.

Bottom Line: We have to look at the price action of all 3 TSP stock funds when making reallocation decisions. While the C fund showed the most weakness this week, it was not horrible. The S and I funds are clearly consolidating along their respective 10DMA lines.

The market can only move in 3 directions; up, down or sideways. When the market is moving up, great! When the market is moving clearly down, that’s ok as well. It’s when the market consolidates sideways that can be very tricky given the 2 move per month rule in TSP…

Have a great week!

Jerry