TSP Talk Weekly Wrap Up

Stocks went on another wild ride last week as the extreme volatility continued. We did see a capitulation-like sell-off on Wednesday that may have marked a temporary bottom, and on Friday stocks rallied to end the week.

Here are the weekly, monthly, and annual TSP fund returns for the week ending October 17:

The stock market returns were not delivered evenly. The small caps outperformed the S&P 500 by 2.72% during the week, while the I-fund ended with just a slight loss. Of course the S-fund has been hit the hardest so it may have been a better bargain for investors, although on Friday the small caps did lag again.

The SPY (S&P 500 / C-fund) bounced back from it’s worst levels after Wednesday’s high volume capitulation. Check out the volume levels on this chart. Whenever volume spikes severely, it almost always marks a reversal, or very close to one, so this was a good sign.

Capitulation basically means “give up”. In this case it was the weaker bulls (those who could be swayed) who were still hanging on, finally couldn’t take the pain anymore and gave up. It’s that, “get me out at any cost” mentality that eventually leads to a lack of sellers (after the capitulation), and triggers a low leaving the market with only buyers left and that can lead to a sharp snap-back rally. Now the S&P 500 will start the weak just under the blue 200-day EMA, and that could act as resistance.

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

The Wilshire 4500 (S-fund) had a nice week and the S-fund gained 1.72%. It didn’t close well on Friday and that could be a concern for Monday morning – at least during early trading. Technically, this chart is still a mess, but relief rallies can be quite strong if the sell-off was severe, and as you can see, the Wilshire has been falling for about 7 weeks.

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

The EFA (EAFE Index / I-fund) is also an ugly chart but well overdue for a relief rally. There is some resistance near 61, but if this can get above that, we could see a nice rebound.

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

The AGG (Bonds / F-fund) was the beneficiary of the sell-off in stocks but the capitulation in stocks on Wednesday had the opposite effect on bonds. It was actually the other way around as bond yields started plummeting on Wednesday morning first, and the 10-year Treasury yield (not shown) fell all the way to 1.87% before rebounding and closing the week at 2.20%, which is actually a very big move. When yields rise bond prices fall and that’s why the bond prices peaked on Wednesday. The stock market reacted to this by bottoming and rebounding.

Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
Good luck and thanks for reading! We will be back here next week with another TSP Wrap Up. You can read our daily market commentary at http://www.tsptalk.com/comments.php. If you need some help deciding what to do with your account, perhaps one of our premium services can help.

Tom Crowley
Weekly Wrap-Ups Archive
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The legal stuff: This information is for educational purposes only! This is not advice or are commendation. We do not give investment advice. Do not act on this data. Do not buy, sell or trade the funds mentioned herein based on this information. We may trade these funds differently than discussed above. We use additional methods and strategies to determine fund positions.

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