What a difference a week can make! By the close last Friday, the C fund had fallen to mid-April price levels and the S fund had fallen to early February levels… By the close this Friday, the C and S funds are both at new All-Time highs! This is a great example of why we do NOT attempt to trade the tops and bottoms. We want to be on the right side of the TREND. The beginning of a new trend, either up or down, can be tough to identify early. That’s why we use technical indicators. One relatively new indicator to StockCharts.com is the Silver Cross Index (SCI). More on the SCI, and how we use it, below.

This newsletter is a supplement to the Weekly Update Show this week. If you haven’t seen the show, I would stop reading here, watch the show, and come back to the newsletter. It’s only about 30 minutes long but, we go into great detail into why Tech is on a comeback, what we can learn from the I fund from 2002 to 2009, and how close we might be to a bitcoin bottom!

For the week the C fund was up 2.74%, S fund up 4.02%, I fund up 1.86%, and F fund down 0.37%.

The Silver Cross Index

The Silver Cross Index (SCI) was launched in late 2019 and recently picked up by StockCharts.com. See the details here. The SCI shows the percent of stocks in an index with a 20 day exponential moving average (EMA) above the 50 day EMA. Don’t let the definition scare you off; it’s a pretty simple concept!

The S&P500 (C fund) is made up of the 500 largest companies in the U.S. Individually, some of those companies move up and some down each day. The S&P500 index is a compilation of the price moves of all of those individual companies. When a company’s 20EMA crosses down thru its 50EMA, that is a bearish signal for that company. When a company’s 20EMA crosses above its 50EMA, that’s a bullish signal for that company. The SCI gives us a visual of which way the trend of the underlying companies in the S&P500 are headed. The SCI is not associated with the price of the S&P500. Rather, it shows us the cumulative direction of strength or weakness of the underlying companies. As more companies in the index strengthen, the SCI line moves higher. As companies weaken, the SCI line moves lower.

The 18 month daily chart of the C fund below shows where the SCI rolled over and turned higher. If we reallocated ONLY using the SCI indicator, we would have avoided the entire CoVid crash and several periods of market turbulence. Additionally, we would have been in the stock funds for the vast majority of the gains made over the past 18 months.

No indicator is a “Silver Bullet” but, the SCI is going to be a great addition to our technical analysis tool box!

Does History Repeat??

We go into great detail on this in the Weekly Update Show!

A long, flat consolidation is NOT indicative of a market top. With this in mind, I went back thru charts looking for an answer to the following question. What happens to price coming out of a long, flat consolidation, following a major bull run, after putting in a major low?

One great example I found was the I fund from the major low in 2003. After putting in the low from the Financial and Real Estate crash, the I fund had a huge run higher for about 1 year. It then went into a 7 month flat base before breaking out to the upside.

The S fund chart below is very similar to the I fund chart above. In this case, the S fun put in a major low at the end of the CoVid crash, then had a huge run higher for almost a year. It then went into almost a 5 month flat base before breaking out this week. The chart patterns are very similar. Could the S fund be setting up for a move similar to the I fund in late 2004?

If the answer is yes, we are in for a HUGE move to the upside… There are no guarantees, and this is certainly a very bullish possibility but, it is a real possibility…

6 Month Daily Charts

The C fund exploded off its 50DMA on Monday and did not look back. It finished the week at new all time highs on big volume. The MACD just crossed to the upside and the SCI looks to be turning up (though this is a bit early). We COULD be at the beginning of a major move higher.

The S fund also exploded higher off of its 50DMA on Monday AND finally cleared long-term resistance at 2250. It looks like the S fund is off to the races…

The I fund still has some work to do. While it did find support at its 50DMA on Monday, the I fund is hitting resistance at its 10DMA and MACD has not yet crossed to the upside. The I fund is the weakest of the three TSP stock funds right now.

The F fund is still consolidating after its early June breakout. As long as the F fund remains above its 50DMA it is a good alternative to the G fund. If the F fund closes below its 50DMA, this would be an indication of a more serious inflation problem that would probably play out in the stock funds as well. We have to watch this closely…

Bottom Line

It looks like the stock funds are off to the races. If the SCI turns higher here, especially on a weekly basis, we should be in good shape for some time. I’m looking forward to utilizing the SCI, along with our other technical analysis tools, to better identify the beginning and end of intermediate term trends.

Have a great week!

Jerry