TSP Talk – Stocks have time-frame issues

What do these numbers have to do with your TSP account?

They are the daily point movements in the Dow Jones Industrial Average (up and down) in 9 of the last 11 trading days. The only 2 days that did not see triple digit moves in the last 11 days were the last two Fridays, and although this past Friday was down just 61 points, it was down over 100-points with about 5 minutes to go in the trading day, and it was down over 200 points earlier in the day.

What does this mean for us? Volatility. If you are in the stock funds, you have seen, and can expect to see, wild rides in your TSP account balances.

After all was said and done last week, the stock market saw a little pulling back from the big October gains. The C-fund lost 2.44% on the week, the S-fund gave up 1.49%, the I-fund dropped 6.01%, while the F-fund (bonds) was up 0.84%, and the G-fund was up 0.03%.

The final numbers for the month of October were big; some of the largest monthly gains we’d seen in a long time. The C-fund finished up 10.93% in October, the S-fund gained 14.09%, the I-fund added 9.48%, while the F-fund (bonds) was up 0.11%, and the G-fund made 0.14% for the month.

Volatility is normally a sign of concern for the market. The Volatility Index (VIX) has been high and it tends to be high when the market is falling, yet over the last 5-weeks stocks have done extraordinarily well so unless the daily charts break down, and that is a possibility, I won’t focus on the VIX and the swings, but instead watch the charts, so let’s take a look at the chart of the S&P 500 from three different time-frames.

The daily chart shows a breakout from a 3-month consolidation. It moved above the 200-day EMA (exponential moving average) and pulled back to successfully test the old highs and the EMA, and has now closed back above the 200 EMA for 3 straight days. We would like to see the S&P move above October highs to confirm the continuation of this breakout, but so far this looks pretty good.

Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk

As we have talked about, the 3rd year of a presidential term has been positive for the stock market since 1939. November and December are historically strong months for the market. This is good news for the market as we head into the end of the year. But here’s the bad news…

The weekly chart of the S&P 500 has potentially entered into a new downtrend after breaking below the rising trading channel that started when the bear market bottomed in March of 2009. This is why I would like to see the October highs get taken out, otherwise it could be the top of a new longer-term declining trading channel.

Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk

The monthly chart also shows this break down in the longer-term trend, and as you can see, these trends can last a long time.

Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk

Despite the breakdowns in the weekly and monthly charts, there is one positive technical sign that could help. The weekly and monthly charts are both trading above their 200 bar EMA’s (200-week EMA and the 200-month EMA) with the monthly chart 200-month EMA appearing to be tested and holding at the recent lows.

So again, we see some positives, especially in the short-term, but there are certainly cracks in the bigger picture. The headlines out of Europe continue to be the main catalysts and with volatility so high, I am concerned that bad news could really shake things up. That is why I have drawn some lines in the sand at the 200-day EMA and the support lines on the daily chart of the S&P 500. If they break, I think the negatives of the longer-term charts will unfortunately play out. If they hold, we should be able to ride a rally into the end of the year.

Good luck, and thanks for reading. We will be back here next week with another TSP Wrap Up.

Tom Crowley

Weekly Wrap-Ups Archive

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